Question

Part Two- for Option B only:

• • Create a loan amortization table over the length of the financing. You should use the example from the asynchronous lecture. While that slide was shown in months, your analysis for this project should be shown in years.   Hint: If your table is correct, the total payments and total interest should equal the numbers you calculated in the above step, and remaining principal should equal zero in the final year.
  • Debt will be acquired to fund construction, and payments will begin in January 2019.

• Assumptions

• The hospital only needs to fund the capital equipment, the startup costs are being funded from existing cash.
• The hospital has an S&P credit rating of A that was used to determine interest rates.
• The length of a bank loan (Options A&B) is tied to the useful life of the asset that is being financed. The items in this project have a variety of useful lives. For this project, we are assuming an average useful life of 15 years, so the entire loan will be over 15 years. In reality, your bank may require more than one loan, based on the useful life of each different group of building/equipment.
• Bonds (Option C) are not restricted by the useful life of the asset they are financing, so they are able to cover long terms- 20 years for our project.   

	Option A	Option B	Option C
	50% equity/50% Loan	Loan	Public Bond (A rating)
annual interest rate w/fees	3.00%	3.00%	3.75%
PV	5,500,000	11,000,000	11,000,000
term	15	15	20
FV	0	0	0

Answer 1

r	3.00%
PV	11000000
Term in years	15
Payment per year	1

Term	Beginning Balance	Interest	Principal	Total Payment	Ending Balance
1	11,000,000.00	330,000.00	733,333.33	1,063,333.33	10,266,666.67
2	10,266,666.67	308,000.00	733,333.33	1,041,333.33	9,533,333.33
3	9,533,333.33	286,000.00	733,333.33	1,019,333.33	8,800,000.00
4	8,800,000.00	264,000.00	733,333.33	997,333.33	8,066,666.67
5	8,066,666.67	242,000.00	733,333.33	975,333.33	7,333,333.33
6	7,333,333.33	220,000.00	733,333.33	953,333.33	6,600,000.00
7	6,600,000.00	198,000.00	733,333.33	931,333.33	5,866,666.67
8	5,866,666.67	176,000.00	733,333.33	909,333.33	5,133,333.33
9	5,133,333.33	154,000.00	733,333.33	887,333.33	4,400,000.00
10	4,400,000.00	132,000.00	733,333.33	865,333.33	3,666,666.67
11	3,666,666.67	110,000.00	733,333.33	843,333.33	2,933,333.33
12	2,933,333.33	88,000.00	733,333.33	821,333.33	2,200,000.00
13	2,200,000.00	66,000.00	733,333.33	799,333.33	1,466,666.67
14	1,466,666.67	44,000.00	733,333.33	777,333.33	733,333.33
15	733,333.33	22,000.00	733,333.33	755,333.33	-