Question

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 $400,000 over a 15-year period beginning in year 2 and ending in year 15. How much will a bank be willing to loan at an interest rate of 10% per year?

Answer 1

The amount of loan that the banker is willing to give is $ 2678,795

The explanation is as follows:

Year	Cash flows	PVF @ 10%	Present value
1	0	0.909091	0
2	400,000	0.826446	330578.5
3	400,000	0.751315	300525.9
4	400,000	0.683013	273205.4
5	400,000	0.620921	248368.5
6	400,000	0.564474	225789.6
7	400,000	0.513158	205263.2
8	400,000	0.466507	186603
9	400,000	0.424098	169639
10	400,000	0.385543	154217.3
11	400,000	0.350494	140197.6
12	400,000	0.318631	127452.3
13	400,000	0.289664	115865.8
14	400,000	0.263331	105332.5
15	400,000	0.239392	95756.82
Present value of cash flows			2678795