Third, Gulf Shores may launch substantial building renovations. In this circumstance, it would be forced to borrow $250,000 from a bank. Gary is considering two options for a term loan: 1. A five-year term loan that would be repaid in equal annual installments, with the first payment due at the end of Year 1. Gary hopes to pay off the loan earlyat the end of Year 3. 2. A seven-year loan that would be repaid in annual installments of differing amounts, with the first payment due at the end of Year 1. For the first three years of the loan, the annual installment would be projected cash surpluses ($25,000 at the end of Year 1, $50,000 at the end of Year 2, and $75,000 at the end of Year 3). For the final four years of the loan, the annual installment would be a fixed (but currently unspecified) cash flow, X, at the end of each year from Year 4 through Year 7. Finally, Gulf Shores has a board-designated building fund to pay for projected facility renovations starting in eight years and lasting for four years (at t = 8, 9, 10, and 11). Current building renovation costs are estimated to be $14,500,000 a year, but they are expected to increase at a rate of 3.5 percent a year. So far, Gulf Shores has accumulated $15,000,000 (at t = 0). Gary's long-run financial plan is to add $5,000,000 in each of the next four years (at t = 1, 2, 3, and 4). Then, he plans to make equal annual contributions in each of the following three years (t = 5, 6, and 7). 

If the Center takes out a 5-year term loan that would be repaid in equal annual installments, how much will it owe the bank if Gary decides to pay off the loan early, at the end of the third year?

The term loan is 40.0 interest semiannually

Answer rating: 100% (QA)

To calculate the amount Gulf Shores will owe the bank if Gary decides to pay off the 5year term loan ... View the full answer