Question

(A) The company needs cash to purchase produce for future sales. (Assume past and future sales/costs are similar.) Bob plans to take a $305,000 loan.

Total cost is 304,897

A1. Is the loan enough to cover total costs?

A2. Bob obtained loan quotations from several banks as follows:

• Bank I offered a loan at 5.8% APR (annual percentage rate) to be paid back in 12 fixed monthly payments.
• Bank II offered a loan to be paid back in 12 fixed monthly payments of $26 thousand each.
• Bank III offered a loan at 5% APR to be paid back in fixed monthly payments of $26,110.
• What is the best offer for Bob? Why?

Explain the functions please

(A) Question	Total
Total Cost
(A) Loan Quotations	Loan	APR	Num. months	payment/month	FV
Bank I
Bank II
Bank II
What is the best loan offer for Bob? Why?

Answer 1

Solution:

(A) Question	Total
Total Cost	304897
(A) Loan Quotations	Loan	APR	Num. months	payment/month	FV
Bank I	305000	5.80%	12	26222	₹ 3,23,167.92
Bank II	305000	4.21%	12	26000	₹ 3,18,091.33
Bank II	305000	5.00%	12	26100	₹ 3,20,478.13
What is the best loan offer for Bob? Why?	Bank II is the best option for Bob as the fixed monhtly payment is the least.

Consider Bank Loan I

For Monhtly Payments use PMT function = PMT(5.80%/12, 12,-305000)

Where 5.80%/12 = periodic interets rate

12 = nper - no of periods

305000 = PV

For FV use FV function = FV(5.80%/12,12, -26222)

Here 26222 = Monhtly payments (PMT)

For APR, use the RATE function = RATE(12,26222,-305000)

12 - Periods

26222 = PMT

305000 = PV