EnergyMax Engineering constructed a small officebuilding for their firm 5 years ago. They financedit with a bank loan for $450,000 over 15 years at6% interest with quarterly payments and compound-ing. The loan can be repaid at any time withoutpenalty. The loan can be refinanced through an insur-ance firm for 4% over 20 years-still with quarterlycompounding and payments. The new loan has a5% loan initiation fee, which will be added to thenew loan.(a) What is the balance due on the original mort-gage (20 payments have been made in the last 5years)?(b) How much will EnergyMax's payments dropwith the new loan?(c) How much longer will the proposed loan run?

Bank loan is the loan which is borrowed by borrower from bank. Bank charges interest on the borrowed…

(a) What is the balance due on the original mort- gage (20 payments have been made in the last 5 years)? (b) How much will EnergyMax's payments drop with the new loan? (c) How much longer will the proposed loan run?

(a) What is the balance due on the original mort- gage (20 payments have been made in the last 5 years)? (b) How much will EnergyMax's payments drop with the new loan? (c) How much longer will the proposed loan run?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 19P

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Concept explainers

Amortized Loans

The term "amortization" refers to spreading the value of a loan or a debt over a series of regular payments or installments comprising of both the principal and interest amount. It generally involves the process where in the value of a loan or an intangible asset is written down over its maturity period.

Question

EnergyMax Engineering constructed a small office
building for their firm 5 years ago. They financed
it with a bank loan for $450,000 over 15 years at
6% interest with quarterly payments and compound-
ing. The loan can be repaid at any time without
penalty. The loan can be refinanced through an insur-
ance firm for 4% over 20 years-still with quarterly
compounding and payments. The new loan has a
5% loan initiation fee, which will be added to the
new loan.
(a) What is the balance due on the original mort-
gage (20 payments have been made in the last 5
years)?
(b) How much will EnergyMax's payments drop
with the new loan?
(c) How much longer will the proposed loan run?

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