Explore BrainMass
Share

Explore BrainMass

    Calculating Maximum amount of Loan

    This content was COPIED from BrainMass.com - View the original, and get the already-completed solution here!

    Deflections, LLC, currently net leases its headquarters office building for $70,000 per month, and this lease has two years left to run. (Under a commercial fully net lease, the tenant pays for all maintenance, repairs, insurance and property taxes.) Deflections considers the rent to be less than the current market rate, but expected growth in its headquarters staff will require it to spend $1 million in repartitioning, wiring and lighting this office space. As an alternative, it is considering building its own HQ building and financing it with a down payment of $1 million and the remainder with a mortgage loan. Develop the following four alternatives for financing the project:

    a. If this mortgage loan would be at 6.5% annual interest, amortized in equal monthly P&I payments over 25 years, and the company limits these payments to the same $70,000 per month, how much can it finance with this loan?

    b. If this mortgage loan would be at 7.79% annual interest, amortized in equal monthly P&I payments over 30 years, and the company limits these payments to $55,000 per month, how much can it finance with this loan?

    c. If this mortgage loan would be at 5.75% annual interest, amortized in equal monthly P&I payments over 25 years, and the company limits these payments to $62,000 per month, how much can it finance with this loan?

    © BrainMass Inc. brainmass.com October 9, 2019, 11:27 pm ad1c9bdddf
    https://brainmass.com/business/annuity/calculating-maximum-amount-of-loan-256775

    Solution Preview

    Solution:

    a. If this mortgage loan would be at 6.5% annual interest, amortized in equal monthly P&I payments over 25 years, and the company limits these payments to the same $70,000 per month, how much can it finance with this loan?

    Rate of interest per month=r=6.5%/12=0.5417%
    Number of installment=n=25*12=300
    Maximum Monthly Payments=C=$70000
    Present Value of annuity=C/r*(1-1/(1+r)^n)
    =70000/0.5417%*(1-1/(1+0.5417%)^300)
    =$10,366,805
    Amount that can be financed with this Loan amount=$10,366,805

    b. If ...

    Solution Summary

    Solution describes the steps to calculate maximum loan amount possible with different combinations of annual interest rate and maximum monthly payments.

    $2.19