Using excel =PMT(14%,3,15000,0), this gives 6,460.97
this means that the total principle plus loan repayment should equal to (6,460.97*3)
totaling to $19,383
THE LOAN AMMORTIZATON SCHEDULE
Year, Payment, Principle amount, Interest portion, Balance
Under the year, we input years 0,1,2 3
Under payment, we input the equal annual payments of $6460.97
Under the principle we input the formulae (Payment-interest)
Under interest we input the formulae (.14*balance)
Under balance we input the formulae (Balance- principle)
The above is depicted in the grid below
C) Executive summary
Interest payments act as tax shield to the business. This means that before arriving at taxable income, the amount of interest accrued for the financial period under consideration has been deducted.
In this regard, the essence of making interest payment deductible expense in tax payments emanates from the fact that authorities want to grant businesses an opportunity to expand by borrowing money from private investors.
Again, this also gives a life line to businesses that consider raising money through borrowing from private sources of finance instead of burdening shareholders with extra load. Share holders’ money will have many implications on the affairs of the business, since this may lead to new investors joining the company with the result diluting the ownership of the company. On the same issue, the protocols associated with raising money from shareholders can ground a business since this cannot be done overnight.
Interest paid on the loan goes decreasing as the payments are made. This is attributed to the fact that as part of the principal s being covered, interest will be charged on a smaller amount that the previous calculation. The trend goes on to the final interest computation whereby the remaining unpaid principal is very low, yielding low interest portions of the annual payments.
As a result, in the computation, large part of the payment goes to the principal recovery whilst in the earlier years when few payments have been made, interest portion of annual amount is high. As the progressive payments are done, interest will keep decreasing until the last installment is paid.
