Snick’s Board Shop is considering several alternative means of financing an expansion. One alternative is to borrow $65,000 from a local bank, but another alternative is to borrow this amount from investors by issuing bonds. Both alter-natives involve a 2-year debt period with monthly payments. Modify the work-book ch5–07 to compute a loan and bond analysis, naming and formatting cell ranges as appropriate. Assume an initial loan rate of 6 percent, an initial bond stated rate of 6 percent, and a market interest rate of 5.5 percent.
a. Print the newly completed loan and bond worksheets in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer.
b. Use the Scenario Manager to create two loan scenarios called Best Case and Worst Case. In the Best Case, the rate would be 5 percent and the loan amount would be $75,000; in the Worst Case, the rate would be 7 percent and the loan amount would be $60,000. You’ll need to place two cell references, separated by a comma, in the Changing cells: text box. The resulting comparison values you’re trying to predict are Payment, Total Payments, and Total Interest. Print the resulting summary worksheet.
c. Use the Scenario Manager to create two bond scenarios called Best Case and Worst Case. In the Best Case, the market rate would be 4 percent and the stated rate would be 5 percent. In the Worst Case, the market rate would be 7.5 percent and the stated rate would be 7 percent. (Again, you’ll need to place two cell references, separated by a comma, in the Changing cells: text box.) The resulting comparison values you’re trying to predict are Proceeds, Total Interest Payments, and Total Interest Expense. Print the resulting summary worksheet.
d. Use Excel’s goal seek feature to calculate the interest rate that the company would have to negotiate under the original loan analysis (in part a) to achieve a monthly payment of $2,750. Round the interest rate to two decimal places. Print the resulting worksheet in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer.
e. Use Excel’s goal seek feature to calculate the market rate necessary to achieve bond proceeds of $67,000. Round the interest rate to two decimal places. Print the resulting worksheet in Value view, with your name and date printed in the lower left footer and the file name in the lower right footer.