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Calculating loan amount

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Deflections, LLC, currently net leases its headquarters office building for $50,000 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.

a. If this mortgage loan would be at 10% annual interest, amortized in equal monthly P&I payments over 20 years, and the company limits these payments to the same $50,000 per month, how much can it finance with this loan?

b. If this mortgage loan would be at 8% annual interest, amortized in equal monthly P&I payments over 20 years, and the company limits these payments to $50,000 per month, how much can it finance with this loan?

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Solution explains the steps to determine maximum amount that can be financed in the given situations.

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a. If this mortgage loan would be at 10% annual interest, amortized in equal monthly P&I payments over 20 years, and the company limits these payments to the same $50,000 per month, how much can it finance with this loan?

Rate of interest per month=r=10%/12=0.833333%
Number of ...

Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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