Question

Instead of paying rent, UniVEND is consider purchasing several vending machines and operating them personally. To do this, Semih needs 500,000 TL in capital. Help Semih determine the best financing option for his business. Pts Part1 Option No. 1- Bank Loan Kar Bank has a special offer for SMEs, offering a 4-year loan at 1.1% monthly interest rate, payments made at the beginning of the period. What are the monthly payments if Semih borrows 500,000 TL? How much of a down payment must Semih pay if he doesn't want his monthly payments to exceed 10,000 TL monthly? Semih has the option to extend the term of the loan to 5 years, but the monthly interest rate will increase to 1.2%. How much does this change his monthly payments? (HINT: find the difference from question 1a) b)

Answer 1

a)

The monthly payment is calculated as follows

PMT = Present value of loan $\div$ 1 - ( 1+interest rate)^-nt $\div$ interest rate

PMT = $ 500,000 $\div$ 1 - ( 1+0.011)^-48 $\div$ 0.011

Monthly payment if Semih borrows $ 500,000 TL = $13,463.43

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b)

The present value of the monthly installments is calculated as

Present value = $ 10,000 [ (1+0.011)⁴⁸ -1 ] $\div$ 0.011 ( 1+0.011)⁴⁸

Present value = $371,376.29

Amount of down payment to be made if Semih doesn't want his monthly payment to exceed $ 10,000 TL = $ 500,000 -  $371,376.29

Amount of down payment to be made = $ 128,623.71

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c)

The monthly payment is calculated as follows

PMT = Present value of loan $\div$ 1 - ( 1+interest rate)^-nt $\div$ interest rate

PMT = $ 500,000 $\div$ 1 - ( 1+0.011)^-60 $\div$ 0.011

Monthly payment if Semih borrows $ 500,000 TL for 5 years = $ 11,427.79

Change in the monthly payment = $13,463.43 -  $ 11,427.79

Change in the monthly payment = $ 2,035.64