LDP 6.3 Using Projections to Help Determine Appropriate Loan Type

Question 1

Projections can help you do what?

Answer 1

Determine the appropriate loan type because they help you identify likely near-term borrowing needs and repayment sources, and these in turn suggest logical choices of loan type.

Question 2

Three key considerations when determining the repayment schedule for a long-term loan?

Answer 2

Useful life of any long-term assets being financed

Impact of the debt on financial leverage

Availability of cash flow to service the debt

Question 3

Seven Steps to Determine the Appropriateness of an Assumed Repayment Schedule

Answer 3

1. Make a projection based on a logical amortization schedule
2. Check the UCA statement’s projected external financing
3. Check the UCA statement’s projected net cash income and after debt amortization
4. Review the financial ratios
5. Adjust the projection
6. Check the financing requirement
7. Verify that net cash after operations is positive