Question

(Complex stream of cash flows) Roger Sterling has decided to buy an ad agency and is going to finance the purchase with seller financing that is, a loan from the current owners of the agency. The loan will be for $ 2400000 financed at an APR of 10 percent compounded monthly. This loan will be paid off over 8 years with end-of-month payments, along with a $ 500 000 balloon payment at the end of year 8. That is, the $ 2.4 million loan will be paid off with monthly payments, and there will also be a final payment of $ 500 000 at the end of the final month. How much will the monthly payments be?

a. How much of the loan will be paid off by the final $500,000 payment?
b. How much of the loan must be paid off by the equal monthly payments?
c. How much will the monthly payments be?

Answer 1

The monthly payments for the loan will be approximately $45,190.17.

Step-by-step explanation:

To calculate the monthly payments for the loan, we can use the formula for Monthly Loan Payments:

Monthly payment = P / (1 - (1 + r)^(-n))

Where P is the loan amount, r is the monthly interest rate, and n is the total number of payments. In this case, the loan amount is $2,400,000, the APR is 10% compounded monthly, and the loan duration is 8 years (96 months). To calculate the monthly interest rate, we divide the annual interest rate by 12:

Monthly interest rate = 10% / 12 = 0.00833

Substituting these values into the formula:

Monthly payment = 2400000 / (1 - (1 + 0.00833)^(-96))

We can use a calculator or spreadsheet to calculate this value. The monthly payment amount is approximately $45,190.17.