Question

A commercial real estate developer plans to borrow money to finance an upscale mall in an exclusive area of the city. The developer plans to get a loan that will be repaid with uniform payments of $475,000 beginning in year 2 and ending in year 16. How much will a bank be willing to loan at an interest rate of 7% per year

Answer 1

$4,043,232.85

Step-by-step explanation:

First we have to compute the present value which is attached in the spreadsheet

Given that,

Future value = $0

Rate of interest = 7%

NPER = 15 years

PMT = $475,000

The formula is shown below:

= -PV(Rate;NPER;PMT;FV;type)

So, after solving this, the present value is $4,326,259.15

No the loan amount would be

= (Present value) ÷ (1 + interest rate)

= $4,326,259.15 ÷ 1.07

= $4,043,232.85