You have decided to purchase a small industrial warehouse. The purchase price is $1 million, and you expect to hold the property for five years. You have narrowed your choice of debt financing to packages to the following two alternatives:

• $700,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments (the annual payment will not include any amortization of principal), and $50,000 in up-front financing costs.
• $750,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments. No up-front financing costs.

Required:

What is the difference in the present value of these two loan alternatives? Assume the appropriate discount rate is 6 percent.

Note: Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars.)

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To calculate the difference in the present value of the two loan alternatives we need to determine t... View the full answer