a small buiness is recieving a five year $1,000,000 loan at subsidized rate of 3% per year....

Free

70.2K

Verified Solution

Question

Finance

asmall buiness is recieving a five year $1,000,000 loan atsubsidized rate of 3% per year. the firmwill pay 3% annual interestpayment each year and the principal at the end of five years. ifmarket interest rate on similar loans is 6% per year what is theNPV of the loan? ignore tax

Answer & Explanation Solved by verified expert

4.0 Ratings (514 Votes)

loan amount (Maturity of loan amount)=   1000000
Interest paid each year 3% = 1000000*3%=   30000
Market interest rate (i)= 6% or   0.06
Time (n)=   5
Present value of ínterest and Loan paid formula = ínterest amount * (1 - (1/(1+i)^n)/i + loan/(1+i)^n
30000*(1-(1/(1+0.06)^5))/0.06 + 1000000/(1+0.06)^5
873629.0864

This is Present value of outflow that is 873629.0864
loan received (present value of inflow)= 1000000

NPV = present value of inflows - present value of outflow
1000000 -873629.0864
126370.9136

So NPV of loan is $126,370.91

Please thumbs up.

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

asmall buiness is recieving a five year $1,000,000 loan atsubsidized rate of 3% per year. the firmwill pay 3% annual interestpayment each year and the principal at the end of five years. ifmarket interest rate on similar loans is 6% per year what is theNPV of the loan? ignore tax

a small buiness is recieving a five year $1,000,000 loan at subsidized rate of 3% per year....

Free

70.2K

Verified Solution

Question

Finance

asmall buiness is recieving a five year $1,000,000 loan atsubsidized rate of 3% per year. the firmwill pay 3% annual interestpayment each year and the principal at the end of five years. ifmarket interest rate on similar loans is 6% per year what is theNPV of the loan? ignore tax

Answer & Explanation Solved by verified expert

Get Answers to Unlimited Questions

Membership Benefits:

Transcribed Image Text

Other questions asked by students