Determine the fixed principal amount

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Reference no: EM13184892

Suppose our business plans to take out a 5-year loan for $100,000. The after-tax MARR is 10%, the tax rate is 40%, and the loan interest rate is 15%. Rank the following loan options using present worth analysis:

Method 1: Balloon loan (pay only interest each year, pay all of the principle at the end)

Method 2: Fixed principal amount (pay fixed amount of principal each year, pay interest in full each year)

Method 3: Conventional load (fixed payment size)

Method 4: Pay nothing until the end

Could you show how you got your answer and why its better?

Reference no: EM13184892

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