4. Taylor Farms is borrowing $75,000 for 2 years. The loan calls for equal payme

Question

4. Taylor Farms is borrowing $75,000 for 2 years. The loan calls for equal payment at the end of every 6 months. Loan rate is 9 percent.

a.     What is the semiannual payment?  (5 points)

b.     How much of the first payment will be used to reduce the principal balance? (2.5 points)

c.     How much of the second payment is interest? (2.5 points)

d.     Construct the amortization schedule (10 points).

5. Able Co. has $218,000 in taxable income and Bravo Co. has $5,600,000 in taxable income. Suppose both firms have identified a new project that will increase taxable income by $12,000.

a.     By how much the additional project will increase Able Co.'s taxes?

b.     By how much the additional project will increase Able Co.'s taxes?

Explanation / Answer

75000 = P/(1.045) + P/1.045^2 + P/1.045^3 + P/1.045^4

a) P = $ 20905.77

b) 20905.77 - 0.045*75000 = $17530.77

c) 3526.875

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