Fresenius Kidney Care is building their flagship facility, which includes a new state-of-the art dialysis clinic, in Buffalo’s Medical Campus. The cost for the new 20,000 ft2 facility is $10,225,000. Fresenius will pay for this upgrade with 10% of their internal capital (i.e. cash) and will finance the remaining 90% with a commercial installment loan. Fresenius will make quarterly payments on this loan for the next 15 years. The loan has a rate of 6% interest compounded quarterly.
(a) Fresenius wants to ensure that they will pay less than $3,000,000 in interest during the first half (i.e. 30 payments) of the loan. If this is the case their board may require additional cash (internal funds) be used to finance the building. Can Fresenius proceed with the current financing plan or will their board require changes? Provide your answer and then support it with numerical analysis.
(b) After Fresenius makes the 30th payment they are offered the opportunity to refinance their remaining debt. The new (refinanced) loan will be repaid on a monthly basis for 10 additional years and has an interest rate of 0.33% per month. How much would Fresenius pay each month for the refinanced loan?
(c) Why would Fresenius consider refinancing their loan according to these new terms?