HOMEWORK 5

PROBLEM 1 LOAN AMORTIZATION (30 points)

Part 1 (25 points) - Acme Manufacturing is considering pursuing debt to help it finance some of its new capital expenditures. To help the company assess whether or not it can afford the debt, Acme wishes to develop an amortization schedule for the new debt that it is contemplating. Details on the debt are highlighted below:

Loan Term: 10 Years

Payment Terms: Monthly at the end of the month

Initial Principal Amount: $7,500,000

Interest Rate: 5.25% annualized

Develop an Amortization schedule for this particular loan. The schedule must show all payments associated with the loan.

Part 2 (5 points) Acme is also considering an alternative form of debt financing that includes a 2-year period where the company is only required to pay interest (no principal payments). The entire length of term for the note remains the same (10 years) so the amortization period on the loan is actually 8 years (2 years of interest-only payments and then 8 years of principal and interest payments). The amount of the principal remains the same at $7,500,000 and payments are still made at month-end. For this loan, however, the lender is going to charge an interest rate of 5.50% annualized. Develop an Amortization Schedule for this loan as well.

FOR THIS ASSIGNMENT PLEASE DEVELOP LOAN AMORTIZATION SCHEDULES FOR BOTH PARTS 1 AND 2. I WILL NOT NEED FORMULA SHEETS/FILES.