Question

Suppose that you have generated the estimates listed below from a pro forma analysis for a 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 = 8% each year. What will be the interest payment at year 2?
a. 25,000.
b. 50,000.
c. 100,000.
d. 150,000.
e. 200,000.

Answer 1

The answer is "Option c" and its calculation can be defined as follows:

Calculation:

Year                To be paid in principal       Paid Interest             Paid Principal $1\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,500,000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 150,000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 500,000\\\\2\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 1,000,000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 100,000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 500,000\\\\3\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 500,000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 50,000\ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ \ 500,000$

That's why "Option c" is the only correct choice.

Learn more: brainly.com/question/17088238