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Loan Amortization and Cash Flow Analysis

The document outlines a loan amortization schedule for a principal of $20,000 at a 1% interest rate over 36 months, detailing monthly payments and the breakdown of principal and interest. It also includes a financial analysis comparing leasing versus buying an asset with a cost of $60,000, showing after-tax cash flows and calculating an IRR of 8.3%. The decision made based on the analysis is to buy the asset.

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21 views8 pages

Loan Amortization and Cash Flow Analysis

The document outlines a loan amortization schedule for a principal of $20,000 at a 1% interest rate over 36 months, detailing monthly payments and the breakdown of principal and interest. It also includes a financial analysis comparing leasing versus buying an asset with a cost of $60,000, showing after-tax cash flows and calculating an IRR of 8.3%. The decision made based on the analysis is to buy the asset.

Uploaded by

munyahchisango07
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
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Download as XLSX, PDF, TXT or read online on Scribd
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GREAT ZIMB

MUNHUMUTAP
DEPARTMENT O

NAME
REG NUMBER
LEVEL
PROGRAM
MODULE
COURSE CODE
LECTURER
GREAT ZIMBABWE UNIVERSITY
MUNHUMUTAPA SCHOOL OF COMMERCE
DEPARTMENT OF BANKING AND FINANCE

NAME Itai M Chisango


REG NUMBER M210947
LEVEL 4.1
PROGRAM RISK MANAGEMENT AND INSURANCE
MODULE RISK MODELLING
COURSE CODE HRMI 4110
LECTURER MR C CHIROMBA
Loan Armotization Schedule
Loan Principal 20,000.00 555.56
Interest Rate 1%
LoanTerm 36
Monthly Payment $664.29

Principal at
Months beginning PMT Interest Principal
1 $20,000.00 $664.29 200.00 $464.29
2 $19,535.71 $664.29 195.36 $468.93
3 $19,066.78 $664.29 190.67 $473.62
4 $18,593.17 $664.29 185.93 $478.35
5 $18,114.81 $664.29 181.15 $483.14
6 $17,631.67 $664.29 176.32 $487.97
7 $17,143.70 $664.29 171.44 $492.85
8 $16,650.86 $664.29 166.51 $497.78
9 $16,153.08 $664.29 161.53 $502.76
10 $15,650.32 $664.29 156.50 $507.78
11 $15,142.54 $664.29 151.43 $512.86
12 $14,629.68 $664.29 146.30 $517.99
13 $14,111.69 $664.29 141.12 $523.17
14 $13,588.52 $664.29 135.89 $528.40
15 $13,060.12 $664.29 130.60 $533.69
16 $12,526.43 $664.29 125.26 $539.02
17 $11,987.41 $664.29 119.87 $544.41
18 $11,443.00 $664.29 114.43 $549.86
19 $10,893.14 $664.29 108.93 $555.35
20 $10,337.79 $664.29 103.38 $560.91
21 $9,776.88 $664.29 97.77 $566.52
22 $9,210.36 $664.29 92.10 $572.18
23 $8,638.18 $664.29 86.38 $577.90
24 $8,060.28 $664.29 80.60 $583.68
25 $7,476.59 $664.29 74.77 $589.52
26 $6,887.07 $664.29 68.87 $595.42
27 $6,291.66 $664.29 62.92 $601.37
28 $5,690.29 $664.29 56.90 $607.38
29 $5,082.90 $664.29 50.83 $613.46
30 $4,469.45 $664.29 44.69 $619.59
31 $3,849.86 $664.29 38.50 $625.79
32 $3,224.07 $664.29 32.24 $632.05
33 $2,592.02 $664.29 25.92 $638.37
34 $1,953.66 $664.29 19.54 $644.75
35 $1,308.91 $664.29 13.09 $651.20
36 $657.71 $664.29 6.58 $657.71

$391,430.31 $23,914.30 $20,000.00

Present Value 20509.26


Ending Balance
19,535.71
19,066.78
18,593.17
18,114.81
17,631.67
17,143.70
16,650.86
16,153.08
15,650.32
15,142.54
14,629.68
14,111.69
13,588.52
13,060.12
12,526.43
11,987.41
11,443.00
10,893.14
10,337.79
9,776.88
9,210.36
8,638.18
8,060.28
7,476.59
6,887.07
6,291.66
5,690.29
5,082.90
4,469.45
3,849.86
3,224.07
2,592.02
1,953.66
1,308.91
657.71
0.00
Asset Cost 60,000
Interest Rate 12%
Lease Rental Payment 14,000
Annual depreciation 10,000
Tax Rate 40%

Year 0 1 2 3 4

After-tax cash flows from leasing


After-tax lease rental (8,400) (8,400) (8,400) (8,400) (8,400)

After-tax cash flows from buying the asset


Asset cost (60,000)
Depreciation tax shield 4,000 4,000 4,000 4,000
Net cash from buying (60,000) 4,000 4,000 4,000 4,000

Differential cash flow: Lease saves lessor


Lease less purchase cash flow 51,600 (12,400) (12,400) (12,400) (12,400)

IRR of diffrential Cash flow 8.3%


After tax borrowing rate 7.2%
Decision buy
5 6

(8,400)

4,000 4,000
4,000 4,000

(12,400) (4,000)

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