Question

Fulton Corporation purchases new manufacturing facilities and assumes a 10 year mortgage of $2 million. The annual interest rate on the mortgage is 5.5% and payments are due at the end of each year.

a. Determine the mortgage payment that Fulton Corporation must make each year.
Round to the nearest dollar.

b. Use Excel to prepare a mortgage amortization schedule for the 10 years.

E7-43 Mortgage Amortization Schedule 1. Enter Rate, Nper (number of total mortgage payments), and (PV) mortgage amount (PV). Enter PV amount as a negative number. 2. To compute PMT, click on Formulas tab, click Insert Function, select PMT and enter values. Rate: Nper PMT: Interest at 5.5% on Annual Year Balance Owing Payment Principal Reduction Balance Owing $0.00

c. At the end of the first year, what amount will Fulton include as "current maturities of long-term debt" on its balance sheet?
Round to the nearest dollar.

Answer 1

Rate Nper Given Information 5.50% 10 -20,00,000.00 $ 2,65,335.54 Refer Explanation PV Pmt Year Amortization Table Beginning Balance Annual payment Interest payment Principal paynent Ending Balance 1 $ 20,00,000.00 $ 2,65,335.54 $ 1,10,000.00 $ 1,55,335.54 $ 18,44,664.46 21 $ 18,44,664.46 $ 2,65,335.54 $ 1,01,456.55 $ 1,63,878.99$ 16,80,785.47 3 $ 16,80,785.47 $ 2,65,335.54 $ 92,443.20 $ 1,72,892.34 $ 15,07,893.13 15,07,893.13 $ 2,65,335.54 $ 82,934.12 $ 1,82,401.42 $ 13,25,491.72 13,25,491.72 $ 2,65,335.54 $ 72,902.04 $ 1,92,433.49 $ 11,33,058.23 6 $ 11,33,058.23 $ 2,65,335.54 $ 62,318.20 $ 2,03,017.33 $ 9,30,040.89 7 $ 9,30,040.89 $ 2,65,335.54 $ 51,152.25 $ 2,14,183.29 $ 7,15,857.60 8 $ 7,15,857.60 $ 2,65,335.54 $ 39,372.17$ 2,25,963.37 $ 4,89,894.23 9 $ 4,89,894.23 $ 2,65,335.54 $ 26,944.18 $ 2,38,391.35 $ 2,51,502.88 101 $ 2,51,502.88 $ 2,65,335.54 $ 13.832.66 $ Explanation: (Notel) We have given rate, Nper and PV and to Calculate Annual Payment, we used Pmt formulae = Pmt (Rate, Nper, PV,FV,Type). Where Rate, Nper, Pv is given and Future value (FV) will be zero as we have to completely pay the loan and for type we selected as we are paying at the end of the period. A) Annual Payment is $265334.54 that is PMT C) Current Maturity of Long term debt refers to the amount that is due within next12 months. So, the Principal payment at the end of 2nd year ($163878.99) is Current Maturity of Long term Debt.

Explanation: (Note1) We have given rate, Nper and PV and to Calculate Annual Payment, we used Pmt formulae = Pmt (Rate,Nper, PV,FV,Type). Where Rate,Nper, Pv is given and Future value (FV) will be zero as we have to completely pay the loan and for type we selected O as we are paying at the end of the period. A) Annual Payment is $265334.54 that is PMT C) Current Maturity of Long term debt refers to the amount that is due within next12 months. So, the Principal payment at the end of 2nd year ($163878.99) is Current Maturity of Long term Debt. Steps to Construct Amortize table Step 1: The Beginning Balance for first year is Loan amount. And for subsequent year, it is same as the ending balance of loan in 1st year. Step 2: Annual Payment is same for all the year it is calculated by using pmt formulae explained above. Step 3: To calculate interest Payment we use formulae = Beginning balance * rate of interest Step 4: To calculate Prinipal Payment we use formulae = Annual payment - Interest payment Step 5: The ending balance will be = Beginning balance - Principal Payment

-2000000 =PMT(E3, E4, E5,0,0) Refer Explanation Pmt =$E$6 =$E$6 Amortization Table Beginning Balance Annual payment Interest payment 2000000 =$E$6 =D10*$E$3 =H10 =D11*$E$3 =H11 =$E$6 =D12*$E$3 =H12 =D13*SE$3 =H13 =$E$6 =D14*$E$3 =H14 =$E$6 =D15*$E$3 =H15 =$E$6 =D16*$E$3 =H16 =$E$6 =D17*SE$3 =H17 =D18*$E$3 =H18 =$E$6 =D19*$E$3 Dollar sign is used to fix the cell Principal paynent =E10-F10 =E11-F11 =E12-F12 =E13-F13 =E14-F14 =E15-F15 =E16-F16 =E17-F17 =E18-F18 =E19-F19 Ending Balance =D10-G10 =D11-G11 =D12-G12 =D13-G13 =D14-G14 =D15-G15 =D16-G16 =D17-G17 =D18-G18 =D19-619 =$E$6 Explanation: (Notel) We have given rate, Nper and PV and to Calculate Annual Payment, we used Pmt formulae = Pmt (Rate, Nper, PV,FV,Type). Where Rate,Nper, Pv is given and Future value (FV) will be zero as we have to completely pay the loan and for type we selected as we are paying at the end of the period. A) Annual Payment is $265334.54 that is PMT C) Current Maturity of Long term debt refers to the amount that is due within next12 months. So, the Principal payment at the end of 2nd year ($163878.99) is Current Maturity of Long term Debt Steps to Construct Amortize table Step 1: The Beginning Balance for first year is Loan amount. And for subsequent year, it is same as the ending balance of loan in 1st year.