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Preparing loan amortization schedule

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Messineo LLC borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal annual end of year payments. As the CFO of Messineo, LLC you must prepare a report of the pertinent information in a short summary for the CEO.

a. Calculate the annual end of year loan payment amount.
b. Prepare a loan amortization schedule showing the interest and principal break down of each of the three loan payments.
c. Prepare a one page executive summary for the CEO, Linda Messineo, with the loan payment schedule explaining why the interest portion of each payment declines with the passage of time.

Also, be sure to remind her that the interest portion of the loan payment is tax deductible. You should include your spreadsheet as an appendix to your executive summary to prove your figures in the loan payment schedule.

Hint: Using a spreadsheet, you will start with the PMT function to calculate the annual payment. Next you will use the IPMT function to find the interest portion for each of the three years.

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Solution Summary

Solution prepares the loan amortization schedule in the given case.

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Please refer attached file for better clarity.

a. Calculate the annual end of year loan payment amount.
Loan Amount =PV of loan= $15,000
Interest rate=RATE=14%
Number of periods=NPER=3 years
Type of payments=type=0 year end payments
FV of loan=FV=0

Use PMT function to get annual end of year loan amount.
Annual year end payment=$6,460.97 =-PMT(D7,D8,D6,D10,D9)

b. Prepare a loan amortization schedule showing the interest and principal break down of each of the three loan payments.
Loan Amortization Schedule

Number of Year Payment Due Interest Principal ...

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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