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As financial Manager, your company is deciding to go for a loan from a bank valued at GHS 300,000,000
As financial Manager, your company is deciding to go for a loan from a bank valued at GHS 300,000,000. Your company records an annual income of GHS 99,500,000 and is able to provide collateral worth GHS 181,000,000. If the threshold acceptable for granting loans to corporate entities is half of total annual income, should your company be granted the loan? Prepare a repayment schedule for this loan contract for seven (7) years, using interest-only, straight line and reducing balance method assuming the loan is granted. Assume an interest rate of 15% per annum.
Expert Solution
a) Granting of Loan by Bank
If the terms of Bank is to grant loan to Corporate Entities based on 50% of their total Annual Income, then it would be very difficult for our Company to avail loan from the Bank as their Annual Income is GHS 99,500,000 & 50% of the said income is GHS 49,750,000 but the requirement of loan is GHS 300,000,000 & hence it is difficult to get the loan approaval.
b) Computation of Repayment Schedule:
In order to get the repayment schedule for the loan of GHS 300,000,000 at an interest rate of 15% to be repaid for 7 years in 7 yearly instalments we need to Calculate the annual instalment amount.
Annual Instalment = GHS300,000,000 * 15/100 (1 + 0.15)7 / (1+0.15)7 - 1
= GHS 45,000,000 *1.60204096 = GHS 72108434
Computation of Repayment Schedule on reducing balance method
| 0.15 | |||||
| Year | Principal O/S Opg | Ann Instalment | Interst part of Inst | Principal part | Principal O/S |
| ($) | ($) | ($) | ($) | ($) | |
| 1 | 30,00,00,000 | 7,21,08,434 | 45000000 | 2,71,08,434 | 27,28,91,566 |
| 2 | 27,28,91,566 | 7,21,08,434 | 40933735 | 3,11,74,699 | 24,17,16,867 |
| 3 | 24,17,16,867 | 7,21,08,434 | 36257530 | 3,58,50,904 | 20,58,65,963 |
| 4 | 20,58,65,963 | 7,21,08,434 | 30879894 | 4,12,28,540 | 16,46,37,423 |
| 5 | 16,46,37,423 | 7,21,08,434 | 24695613 | 4,74,12,821 | 11,72,24,602 |
| 6 | 11,72,24,602 | 7,21,08,434 | 17583690 | 5,45,24,744 | 6,26,99,858 |
| 7 | 6,26,99,858 | 7,21,08,434 | 9404979 | 6,27,03,455 | -3,597 |
.
Repayment schedule based on Straight line Method
Principal Amount GHS 300,000,000 Interest rate 15% Time period = 7 Years
Total Interest for 7 Years (300,000,000*15%*7) = GHS 315,000,000
Principal Amount = GHS 300,000,000
Total Amount to be paid for 7 years = GHS 615,000,000
Repayment schedule of 7 Years would be GHS 87,857,143 Comprising
Interest amount of GHS45,000,000 & Principal amount of GHS 42,857,143
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