Suppose that you have generated the estimates listed below from a pro forma analysis for an international trade company that had requested a three year loan. The loan is a $1.5 million term loan with the EQUAL ANNUAL PAYMENTS OF PRINCIPALS. The P&I payments are due at the end of each year with the annual interest rate = Prime rate + 2%.

Yr.1 Yr. 2 Yr. 3

Capital expenditure 250,000 125,000 75,000

Cash dividends 140,000 140,000 140,000

Cash flow from operations before interest expense 750,000 780,000 800,000

Assuming the Prime rate = 7.5% each year. What will be the interest payment at year 3?

	1.	$27,500
	2.	$37,500
	3.	$37,000
	4.	$47,500
	5.	$57,500