Question: part 3 steve owns a startup business that is currently...
Part 3. Steve owns a startup business that is currently operating from his parent's garage. He would like to rent out a small shop for his business. However, he does not have his capital to invest, so he will need to raise $15,000 for his new shop. Steve is considering taking a loan for the required amount for his shop. His local bank charges 7.5% per year compounded quarterly and requires quarterly repayments. The bank offered Steve a one-year interest-only option with his three-year loan. This offer means that for the first year, every quarter, Steve would pay only interest on the amount he borrowed. For the following years, the second and third year, loan repayments will consist of a principal (the original amount), plus interest.
(a) Prepare an EXCEL spreadsheet that shows the end-of-the quarter balance in Steve’s loan account over the next three years. In addition, use your amortisation schedule to calculate the total interest and the total amount paid over the life of the loan. Attach a copy your spreadsheet into your assignment submission.
(b) A wealthy family friend nicknamed Bill had offered to help Steve and has made an alternative offer for him to obtain the $15,000 loan. Bill has proposed the following loan terms over 12 months. He claims this is a ‘cheaper and simple’ with everything paid off when Steve opened up his shop (end of the first month). Bill will give Steve the $15,000 at the start of the month, and Steve will start paying $1,400 at the end of each month until the end of the loan period. Bill claims he is entitled to total $2000 in interest (over a year), which will be paid to him under his proposed conditions. Steve would like to know the interest rate Bill is charging him. Also, Steve would like to verify the total amount of interest ($2000) Bill claims that he is entitled to. (18 Marks)
Also, show your calculation for the total interest Steve paid under this arrangement. EXCEL Instructions: You will need to set up a new Amortisation schedule, like the one shown below, for the 12-month loan. For full marks provide: (i) a copy of your Excel spreadsheet that looks similar to the one below and (ii) your calculation for the total interest to verify Bill’s $2000 claim. Set up the amortisation schedule: Set up your amortisation schedule and ensure you extend it to show all 12 months.
Use Goal Seek to calculate the correct interest rate: Now use GoalSeek (Data → Data Tools → What-If Analysis in EXCEL 2010, Excel 2013 and EXCEL 2016) to find the Interest Rate (APR) that will balance the final entry in the spreadsheet to 0. To run Goal Seek, place any value in the Interest Rate cell (B2). When running Goal Seek, Excel will try different interest rates until the value in E18 equals 0. It doesn’t matter what interest rate you start with, as Excel will tell you the correct answer ☺ Provide a screenshot when using Goal Seek. Also provide an ‘after’ shot of the full spreadsheet, showing the correct answers. Remember to show the total interest calculation as well! Save the screenshot in your active worksheet (part b worksheet).
(c) Steve is seeking your advice in making this financial decision. Write a short summary for the couple explaining your findings.