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You and your business partners are contemplating the purchase of a commercial building. The conditions for the loan are: $920,000 principal on a 4-year term,
You and your business partners are contemplating the purchase of a commercial building. The conditions for the loan are: $920,000 principal on a 4-year term, with a loan with 6.9% interest, using a balloon payment method (i.e., paying only the interest years 1-3 and the last portion of the interest and the principal in Year 4). You have secured a long-term debt with longer repayment provisions at a lower interest rate of 5.8%, that you can use right now to make the payments of the balloon payment loan. a) What immediate single payment (i.e., present dollars) would be a fair offer to pay all the series of payments for the balloon payment? (Assume that you are going to use the new long-term loan that you secured at a lower interest rate to cover all the payments) =$ b) What if, instead of using a balloon payment method, you can use an equivalent (i.e., using the same interest rates and term) with uniform annual payments? =$
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