In this workout, we're told that Blitter Inc has a 900 million 5-year loan with an interest rate of 5%, which is due to mature in the near future. And we're asked to identify whether based on the cash flow forecasts available that Blitter Inc will be able to refinance that 900 million loan based on these cash flows. The cash flows that we are given are that in year one, the company has 200 million available for debt servicing, that's making interest and debt repayments. Moving to 100 in year two, then 300 and 400, and finally, in the fifth year, they only have 100 available for debt service. In order to calculate whether they will be able to borrow 900 million today and repay on that new loan today with these future cash flows, the first thing we need to do is to calculate the post-tax interest rate, which we calculate by taking the 5% interest rate on this refinanced loan and multiply it by one minus the tax rate of 20%. We're doing this because the interest payments are tax deductible. The next thing we need to do is to calculate the amount of money we can borrow today and afford to meet the interest payments and the principal repayments with these cash flows. And we do that with the NPV function where we pick up the post-tax interest rate, first of all and then the cash flows that we have available to make the debt repayments and interest payments with. This calculation tells us that we could afford to borrow 975.6 million today and meet the 4% interest payments and repay the 975.6 that we've borrowed with these five years of cash flows. So it looks like Blitter is gonna be able to afford to refinance this existing loan at the same interest rate with these five years of cash flows. To prove that we can afford to repay 975.6 million over the course of these next five years, we're going to complete this amortization table, which proves that with these cash flows, we can meet the interest payments and repay all the principal as well. The way that these calculations are gonna work is that the beginning balance for year one comes from the ending balance for year two.

In each year then, we accrue interest based on the opening balance for that year. So we need to take the interest rate and hit F4 to lock onto it, and multiply that by the opening balance for the year, which tells us that we have to pay 39 million of interest during the first year. We accrue 39 million of interest based on that opening outstanding balance of 975.6. That adds to the amount of money that we owe to the lender, but we are then able to make payments to the lender of 200 million. This 200 million covers the interest payment of 39 and then also goes on to repay some of the outstanding principal, which means that the amount owing on this loan by the end of the year will only be 814.6. We're using the additional 161 that is left over after we've met the interest payment of 39 for the year to repay some of the outstanding principal. We can then copy these formulas forward to the second year and we'll be able to see that we start off the year with 814.6 as the outstanding size of this loan. Interest accrues at 4% on that on a post-tax basis. This is smaller than the year one interest amount because there's a lower opening outstanding balance. We only have cash of 100 available in year two to meet interest and principal payments so we're only able to pay off 67.4 of the principal in year two. But if we roll these formulas forward for the whole five years of the term of the loan, we will see that by the end of the fifth year, there is a zero outstanding balance, which tells us that the payments that we've made equating to the cash balances that we have during these five years for interest and principal payments have covered all of the interest that's accrued over the five years and also repaid the initial 975.6.