What is the present value of the existing loan for the bank

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A bank is in the process of renegotiating a loan. The principal outstanding is $50 million and is to be paid back in two installments of $25 million each, plus interest of 8 percent. The new terms will stretch the loan out to 5 years with no principal payments except for interest payments of 6 percent for the first three years. The principal will be paid in the last two years in payments of $25 million along with the interest. The cost of funds for the bank is 6 percent for both the old loan and the renegotiated loan. An up-front fee of 1 percent is to be included for the renegotiated loan.
What is the present value of the existing loan for the bank?

Reference no: EM13242460

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