# Question & Answer: Messineo LLC borrowed \$15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal annual end of year payments. A…..

Messineo LLC borrowed \$15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal annual end of year payments. As the CFO of Messineo, LLC you must prepare a report of the pertinent information in a short summary for the CEO.

Calculate the annual end of year loan payment amount.

Don't use plagiarized sources. Get Your Custom Essay on
Question & Answer: Messineo LLC borrowed \$15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal annual end of year payments. A…..
GET AN ESSAY WRITTEN FOR YOU FROM AS LOW AS \$13/PAGE

Prepare a loan amortization schedule showing the interest and principal break down of each of the three loan payments.

Prepare a one page executive summary for the CEO, Linda Messineo,with the loan payment schedule explaining why the interest portion of each payment declines with the passage of time.

Also, be sure to remind her that the interest portion of the loan payment is tax deductible. You should include your spreadsheet as an appendix to your executive summary to prove your figures in the loan payment schedule.

Hint: Using a spreadsheet, you will start with the PMT function to calculate the annual payment. Next you will use the IPMT function to find the interest portion for each of the three years please no copy paste

EXECUTIVE SUMMERY

Loan payment schedule is attached.

The interest of 14% is payable on the balance of the loan ,

Since the payment is made on equal instalment, in the beginning more amounts are paid on account of interest and lesser amount on account of principle. As the principle balance reduces, the interest of the year also reduces. Hence, a higher amount from the payment is allocated to the principle.

The interest portion of the payment is considered as expense. Hence it is tax deductable.

Though we are paying interest rate of 14% , effective interest on the loan is lower, since the interest expense is tax deductible.

From the attached spread sheet, you may know that we are paying \$6460.97 every year. Out of the payment , an amount of \$2100 allocated to interest in the first year and only \$793.45 in the third year.

In the first year, the principle payment is\$4360,97, whereas in the third year payment towards principle is \$5667.52

LOAN PAYMENT SHEDULE:

 Year Payment Interest Principle Year end Balance 0 \$15,000 1 \$6,460.97 \$2,100.00 \$4,360.97 \$10,639.03 2 \$6,460.97 \$1,489.46 \$4,971.51 \$5,667.52 3 \$6,460.97 \$793.45 \$5,667.52 \$0.00 Annual payment is calculated by using excel PMT function with rate=14%, Nper=number of payments=3 and PV =\$15000 PMT= \$6,460.97 Interest is calculated by using excel IPMT function with rate=14%, Nper=number of payments=3 and PV =\$15000 and Per, the year of interest Principle payment is calculated by using excel PMT function with rate=14%, Nper=number of payments=3 and PV =\$15000 and Per, the year of Principle calculation