Please describe the procedures you would use in determining the required annual
ID: 2635526 • Letter: P
Question
Please describe the procedures you would use in determining the required annual deposit (as described below) and then calculate your answer. If your procedures are accurate, you will get full credit. Even if your procedures are not fully accurate, but you are on the right track, you will get partial credit. If your procedures are accurate and you get close to the right answer, you will get double credit.
Here is the question:
Ultimate Healthcare, Inc. is purchasing a clinic in Clearwater, FL. Ultimate has issued a bond to help with the financing of the clinic.
The bond debt will be $80,000,000 which will be scheduled to be retired in 15years. This means that $80,000,000 must be available at the end of the bond's life to retire the debt.
There will be a sinking fund payment required to pay the debt that will occur in the last five years of the life of the bond.
At this time, there is $10,000,000 available.
The investment yield is six percent.
What is the required annual deposit?
Explanation / Answer
Maturity Value of Bond (FV) = $ 80,000,000
Value available at year 10 (PV) = $ 10,000,000
Time left from Year 10 = 5 year
Interest Rate = 6%
The required annual deposit = pmt(rate,nper,pv,fv)
The required annual deposit = pmt(6%,5,-10000000,80000000)
The required annual deposit = $ 11,817,748.03