ERMUSR HANDOUT #1 07-08-2009 Big Stone II Amortization Examples
July 8, 2009
I. Home Mortgage Example
To illustrate how the capital cost of the Big Stone II project will be amortized, consider the
similar example of a home mortgage:
The home has a 30 year mortgage of$123,000 at 5.5%/year interest rate. The monthly payments
will be:
$123,000 * (A/P, 360 months, 5.5%/12) _ $689.38 per month.
The mortgage payment of$698.38 per month includes payment of the principal and payment of
interest.
The payments of principal and interest in any particular year are illustrated below:
Annual Payments on a $123,000 Mortgage,
30 years at 5.5% per year
$9,000 —
$8,000
$7,000 , Payments
$6,000 toward
principal —•—Interest
$5,000 —.—Annual Payments
° $4,000
$3,000
$2,000 Interest
$1,000
•
$0
Year
Over the 30 year period:
Total of monthly payments = 360 * $689.38 per month = $248,177
Payments toward principal = ($123,000)
Interest = $125,177
II. Big Stone II Debt Payments Example
The pattern of payments on the Big Stone II project will be very similar to a home mortgage in
the previous example.
Assume that a 30 Megawatt ERMU share of BSPII would cost $123 million, and would be
financed with a 30 year bond at 5.5%/year interest rate. The monthly payments will be:
$123 million * (A/P, 360 months, 5.5%/12) = $689,380 per month.
Similar to our home mortgage example, the mortgage payment of$698,380 per month includes
payment of the principal and payment of interest.
The payments of principal and interest in any particular year are illustrated below:
Annual Payments on a $123,000,000 Bond,
30 years at 5.5% per year
$9,000,000 . . __._..._ _.._ .......
$8,000,000
$7,000,000 - Payments
:gggg
principal
_ _ —____ — ____ _ —a—Annual Payments
o $4,000,000 --- A
$3,000,000
$2,000,000 - Interest_
$1,000,000
•
$0 _
M Laf� M 2 1(1,1 I�
� V � N N
Year
Over the 30 year period:
Total of monthly payments = 360 * $689,380 per month = $248,177,000
Payments toward principal = ($123,000,000)
Interest = $125,177,000
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