Exercises for loan calculations The calculations in this tutorial relate to the determination of loan repayments to identify taxable incomes for the private analysis. Question 1 Suppose that a firm has borrowed $510,000 in the current year at 7.5% interest rate, with a commitment to repay the loan (principal and interest) in equal annual instalments over the following 7 years. Calculate: a) The amount of the annual principal repayment b) The stream of interest payments c) The stream of total annual repayments Question 2 Suppose a firm plans to finance a project by borrowing $2.5 million from the Bank at a real interest rate of 8.5% per annum repayable in 15 years. Calculate a) The amount of the annual principal repayment b) The stream of interest payments ) The stream of total annual repayments Question 3 Suppose a firm decides to take out loan for $100,000. The rate of this loan is fixed at 5.5% per annum and the loan term is 10 years with a balloon option of 25% (a lump sum payment at the end of the loan). Calculate: a) The present value of the balloon repayment b) The stream of annual principal repayments c) The stream of interest payments d) The stream of total principal repayments Question 4 Suppose a firm is considering a project with the following net benefit stream: Year | 0 1 2 3 4 5 Net Benefit (Market) | -700 200 200 200 200 200 To undertake this project, the firm will open an overdraft account worth 50% of the initial cost in year 0. Calculate: a) The interest payments on the overdraft b) The stream net private benefits after interest c) The net present value of the private benefit. Question 5 Suppose a firm borrows $12,000 in 3 equal disbursements (at years 0, 1, 2), at an interest rate of 7%, with a commitment to repay the loan (principal and interest) in equal annual instalments over 10 years. From a borrower's perspective calculate: a) The amount of the annual principal repayment. b) The stream of interest payments which can be entered in the tax calculation of the private benefit-cost analysis. c) The stream of total annual repayments. Hint: You need to first calculate the present value of the loan amount in year 0 and use it to calculate principal & interest repayments. Question 6 If a firms cash flow is: Year 0 1 2 3 4 5 6 7 8 9 10 Cash flow |-10000 | -2000 | 1000 | 1000 | 1000 | 2000 | 2000 | 2000 | 3000 | 3000 | 3000 d) Calculate the annual equivalent repayment. Explore calculating the same cost using different methods Extra Practice Questions Question 7 Suppose a firm plans to finance a project by borrowing $72,000 from the Bank at a realinterest rate of 3.5% per annum repayable in 20 years. Calculate a) The amount of the annual principal repayment b) The stream of interest payments c) The stream of total annual repayments Question 7 Suppose that a firm has borrowed $1000 in the current year at a 10% interest rate, with a commitment to repay the loan (principal and interest) in equal annual instalments over the following five years. Calculate: a) The amount of the annual principal repayment. b) The stream of interest payments which can be entered in the tax calculation of the private benefit-cost analysis. c) The stream of total annual repayments