Time-Value-of-Money: Notes Receivable Amortization Schedule and Project Evaluation (sample amortization schedules on this sheet, Required Assignments on the next Sheet) Example 1: Amortization of Zero-Interest Note Receivable, Face Value $10,000, 3 year, interest calculated annually, when market interest rate is 9% Need to first calculate the PV of such a Zero-Interest Note: ($7,721.83) Amortization Schedule: Stated rate Interest Received Mkt rate Face Value interest reve Amortization book value begin of y1 $7,721.83 End of Y1 0 0 0.09 10000 $694.97 $694.97 $8,416.80 End of Y2 0 0 0.09 10000 $757.51 $757.51 $9,174.31 End of Y3 0 0 0.09 10000 $825.69 $825.69 $10,000.00 total amortized discount on N/R: $2,278.17 Example 2: Amortization of Note Receivable with a stated 10% interest rate, paid annually, Face Value $10,000, 3 year, when market interest rate is 12% Need to first calculate the PV of such a Note: $9,519.63 interest received Mkt rate Amortization Schedule: Stated rate begin of y1 End of Y1 0.1 End of Y2 0.1 End of Y3 0.1 1000 1000 1000 0.12 0.12 0.12 Face Value interest reve amortization book value $9,519.63 10000 $1,142.36 $142.36 $9,661.99 10000 $1,159.44 $159.44 $9,821.43 10000 $1,178.57 $178.57 $10,000.00 Example 3: Amortization of Note Receivable with a stated 7% interest rate, paid annually, Face Value $4,000, 6 year, when market interest rate is 6.5% Need to first calculate the PV of such a Note: $4,096.82 Amortization Schedule: Stated rate interest received Mkt rate begin of y1 0.07 0.065 year end y1 0.07 280 0.065 year end y2 0.07 280 0.065 year end y3 0.07 280 0.065 year end y4 0.07 280 0.065 year end y5 0.07 280 0.065 year end y6 0.07 280 0.065 Face Value interest reve amortization book value 4000 $4,096.82 4000 $266.29 ($13.71) $4,083.11 4000 $265.40 ($14.60) $4,068.52 4000 $264.45 ($15.55) $4,052.97 4000 $263.44 ($16.56) $4,036.41 4000 $262.37 ($17.63) $4,018.78 4000 $261.22 ($18.78) $4,000.00 Project evaluatoin and Amortization Schedule: You have to replace your roof and have the following financing options offered by different roofers for the same job costing $18,000, when the market interest rate is 3.6%. Roofer A: 3 year financing plan, monthly payments at end of each month, they said they only charge you a 3.25% annual Interest rate, plus some loan closing cost in additional to the $18,000 cost of the roof. Based on their calculation, your monthly payment is $551.57 for 36 payments. Roofer B: No payment in the first 12 month, after that, a four-year financing plan at the market rate. They calculated the monthly payment (end of month) of $429.58 for 48 months. Roofer B made it clear that there are loan closing cost of $500, included in the caluation and they always use monthly compounding in calculating interests and payments. Required: a. . b. C. What is the loan closing cost for Roofer A? For Roofer B, is there interest charges in the first 12 months when there is no payments required? If so, at what rate? Complete the following schedule to show the balance at different time point, if you go for Roofer B: interest interest rate payment expense pay-back of of balance on project price project 18500 0 Beginning end of Month 1 end of Month 2 end of Month 3 end of Month 4 end of Month 5 end of Month 6 end of Month 7 end of Month & end of Month 9 end of Month 10 end of Month 11 end of Month 12 end of Month 13 end of Month 14 end of Month 15 end of Month 16 end of Month 17 end of Month 18 end of Month 19 end of Month 20 end of Month 21 end of Month 22 end of Month 23 end of Month 24 end of Month 25 end of Month 26 end of Month 27 end of Month 28 end of Month 29 0 0 0 0 0 0 0 0 0 0 0 0 0 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 end of Month 30 end of Month 31 end of Month 32 end of Month 33 end of Month 34 end of Month 35 end of Month 36 end of Month 37 end of Month 38 end of Month 39 end of Month 40 end of Month 41 end of Month 42 end of Month 43 end of Month 44 end of Month 45 end of Month 46 end of Month 47 end of Month 48 end of Month 49 end of Month 50 end of Month 51 end of Month 52 end of Month 53 end of Month 54 end of Month 55 end of Month 56 end of Month 57 end of Month 58 end of Month 59 end of Month 60 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 Time-Value-of-Money: Notes Receivable Amortization Schedule and Project Evaluation (sample amortization schedules on this sheet, Required Assignments on the next Sheet) Example 1: Amortization of Zero-Interest Note Receivable, Face Value $10,000, 3 year, interest calculated annually, when market interest rate is 9% Need to first calculate the PV of such a Zero-Interest Note: ($7,721.83) Amortization Schedule: Stated rate Interest Received Mkt rate Face Value interest reve Amortization book value begin of y1 $7,721.83 End of Y1 0 0 0.09 10000 $694.97 $694.97 $8,416.80 End of Y2 0 0 0.09 10000 $757.51 $757.51 $9,174.31 End of Y3 0 0 0.09 10000 $825.69 $825.69 $10,000.00 total amortized discount on N/R: $2,278.17 Example 2: Amortization of Note Receivable with a stated 10% interest rate, paid annually, Face Value $10,000, 3 year, when market interest rate is 12% Need to first calculate the PV of such a Note: $9,519.63 interest received Mkt rate Amortization Schedule: Stated rate begin of y1 End of Y1 0.1 End of Y2 0.1 End of Y3 0.1 1000 1000 1000 0.12 0.12 0.12 Face Value interest reve amortization book value $9,519.63 10000 $1,142.36 $142.36 $9,661.99 10000 $1,159.44 $159.44 $9,821.43 10000 $1,178.57 $178.57 $10,000.00 Example 3: Amortization of Note Receivable with a stated 7% interest rate, paid annually, Face Value $4,000, 6 year, when market interest rate is 6.5% Need to first calculate the PV of such a Note: $4,096.82 Amortization Schedule: Stated rate interest received Mkt rate begin of y1 0.07 0.065 year end y1 0.07 280 0.065 year end y2 0.07 280 0.065 year end y3 0.07 280 0.065 year end y4 0.07 280 0.065 year end y5 0.07 280 0.065 year end y6 0.07 280 0.065 Face Value interest reve amortization book value 4000 $4,096.82 4000 $266.29 ($13.71) $4,083.11 4000 $265.40 ($14.60) $4,068.52 4000 $264.45 ($15.55) $4,052.97 4000 $263.44 ($16.56) $4,036.41 4000 $262.37 ($17.63) $4,018.78 4000 $261.22 ($18.78) $4,000.00 Project evaluatoin and Amortization Schedule: You have to replace your roof and have the following financing options offered by different roofers for the same job costing $18,000, when the market interest rate is 3.6%. Roofer A: 3 year financing plan, monthly payments at end of each month, they said they only charge you a 3.25% annual Interest rate, plus some loan closing cost in additional to the $18,000 cost of the roof. Based on their calculation, your monthly payment is $551.57 for 36 payments. Roofer B: No payment in the first 12 month, after that, a four-year financing plan at the market rate. They calculated the monthly payment (end of month) of $429.58 for 48 months. Roofer B made it clear that there are loan closing cost of $500, included in the caluation and they always use monthly compounding in calculating interests and payments. Required: a. . b. C. What is the loan closing cost for Roofer A? For Roofer B, is there interest charges in the first 12 months when there is no payments required? If so, at what rate? Complete the following schedule to show the balance at different time point, if you go for Roofer B: interest interest rate payment expense pay-back of of balance on project price project 18500 0 Beginning end of Month 1 end of Month 2 end of Month 3 end of Month 4 end of Month 5 end of Month 6 end of Month 7 end of Month & end of Month 9 end of Month 10 end of Month 11 end of Month 12 end of Month 13 end of Month 14 end of Month 15 end of Month 16 end of Month 17 end of Month 18 end of Month 19 end of Month 20 end of Month 21 end of Month 22 end of Month 23 end of Month 24 end of Month 25 end of Month 26 end of Month 27 end of Month 28 end of Month 29 0 0 0 0 0 0 0 0 0 0 0 0 0 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 end of Month 30 end of Month 31 end of Month 32 end of Month 33 end of Month 34 end of Month 35 end of Month 36 end of Month 37 end of Month 38 end of Month 39 end of Month 40 end of Month 41 end of Month 42 end of Month 43 end of Month 44 end of Month 45 end of Month 46 end of Month 47 end of Month 48 end of Month 49 end of Month 50 end of Month 51 end of Month 52 end of Month 53 end of Month 54 end of Month 55 end of Month 56 end of Month 57 end of Month 58 end of Month 59 end of Month 60 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58 429.58