Part 2 – Admission/Application Essay Example
Requirement 2 Loan repayment is also referred to as a loan amortization which specifies the time schedule for paying interest and principal. Loan repayment requires the repayment of interest and the principal amount to be made in equal instalments as this protect the loan holder from repaying huge amounts at the end of the loan maturity (Fabozzi 27). From the cash budget estimates of the company it is evident that there is no sufficient funds to cater for all the activities of the company and therefore this implies that the loan repayment cannot be made in full. To this regard, some changes need to be made so as to ensure full repayment of the loan within the three months which include; firstly, determine the company safe cash levels hence enabling the company adjust the costs it is foreseeing to incur. From the cash budget provided, some operating expenses to be paid can be transferred to the fourth month. This has an impact of reducing the expenditures (inventory and equipment) to be paid within the three months and therefore the company will have enough funds to service the loan. The dollar amount is 220,000-50,600= $169,400
Secondly, the company can refinance or refund its loan. This refers to calling the issue and replacing it with a new issue of loan. Loan refinancing focuses on the profitability of the company that is as a result of a decrease in the interest of the loan. Similarly, it yields higher profits since the difference between the purchase price of the old loan, and the book value is treated as income in the year in which they are called (Fabozzi 32). Loan refinancing also eliminates all the strict terms and conditions in the loan agreement. The dollar amount is $266,000
Fabozzi, Frank J. Handbook of Finance: Financial Markets and Instruments. Hoboken: John
Wiley & Sons, 2008. Internet resources.