Fishnet Publications Inc. needs to take out a one-year bank loan of $450,000 and has been offered loan terms
Fishnet Publications Inc. needs to take out a one-year bank loan of $450,000 and has been offered loan terms.
1. Simple interest payment will be $450,000*11/100 = $49,500 for the year and for november it will be $49,500 * 30/360 = $4,125.
Therefor $4125 will be paid as interest in november under simple interest option.
2 Add on interst adds total interest to be paid to the upfront cost and divides the total loan into equal installments.
I.e loan of $450,000 @8 %add on interest i.e $36,000 per year.
Total principal and interest to be paid = $450,000 +36,000= 486,000 in the year
Now divide into 12 equal installments $ 486,000/12= $40,500
$40,500 is to be paid in the month of november for add on option.
Keedsler motors Inc.
There are certain more factors which the company had to evaluate before accpepting the loan, such as term of the loan because add on option would be disadvantageous on the long term loans.