Question
Roberts Co. will borrow $250,000 on June 30th, 2021. The CFO is trying to decide whether to accept principal and interest payments over the term
Roberts Co. will borrow $250,000 on June 30th, 2021. The CFO is trying to decide whether to accept principal and interest payments over the term of the loan or to pay interest only with a balloon payment at the end. Terms are 12% interest compounded quarterly, the first payment is due Sept 1, 2021, and the last payment is due July 1, 2023. Payments would be made quarterly.
Instructions
Compare total interest paid under both methods, and then calculate the balance sheet presentation as of December 31, 2021.
Fully Amortized Loan
Fully amortized $250,000 loan at 12% APR compounded quarterly with 8 equal payments
Beg. Bal. | Payment | New balance | Interest | Ending Bal. | |
30-Jun-21 | 250,000.00 | ||||
1-Sep-21 | |||||
1-Jan-22 | |||||
1-Apr-22 | |||||
1-Jul-22 | |||||
1-Sep-22 | |||||
1-Jan-23 | |||||
1-Apr-23 | |||||
1-Jul-23 | |||||
Interest Only Loan
Interest only $250,000 loan at 12% APR compounded quarterly with the balance due July 1, 2023.
Beg. Bal. | Payment | New balance | Interest | Ending Bal. | |
30-Jun-21 | 250,000.00 | ||||
1-Sep-21 | |||||
1-Jan-22 | |||||
1-Apr-22 | |||||
1-Jul-22 | |||||
1-Sep-22 | |||||
1-Jan-23 | |||||
1-Apr-23 | |||||
1-Jul-23 | |||||
Step by Step Solution
3.54 Rating (164 Votes )
There are 3 Steps involved in it
Step: 1
Solution Fully amortized 250000 loan at 12 APR compounded quarterly with 8 qual ...Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started