Hi! I am in an intro level Finance course and I am stuck on this problem....

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Finance

Hi! I am in an intro level Finance course and I am stuck on thisproblem. Any help would be greatly appreciated.
I am deciding on opening a restaurant. I was able to scrapetogether some capital from friends and family, but I must pay themback in 4 years at 12% per annum. I figure that it will cost me$165,000 to start up with rent, deposits, equipment, salaries,chicken, basil, rice, etc. for the first year, but I expect to makegross revenue of $63,120, $70,800, and $91,080 in the following 3years and net income of $13,620, $3,300 and $29,100 in those 3years. Should I do it?
The bank says it can give me a loan for up to $165,000 at aninterest rate of 12% as long as I pay it back at in 4 years. ShouldI do it? How much should I borrow, or should I not borrow atall?
This is all part of one question, but if this counts as morethan one question I would love it if I can get help with at leastthe first part of the question. Thank you!

Answer & Explanation Solved by verified expert

4.0 Ratings (533 Votes)

The question has very limited information Therefore some assumptions have been made as follows 1 Annual net income is taken as annual cash flow for each year The total value of 165000 is taken as the cash outflow for for first year Cash outflow will be reported See Answer

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Hi! I am in an intro level Finance course and I am stuck on thisproblem. Any help would be greatly appreciated.I am deciding on opening a restaurant. I was able to scrapetogether some capital from friends and family, but I must pay themback in 4 years at 12% per annum. I figure that it will cost me$165,000 to start up with rent, deposits, equipment, salaries,chicken, basil, rice, etc. for the first year, but I expect to makegross revenue of $63,120, $70,800, and $91,080 in the following 3years and net income of $13,620, $3,300 and $29,100 in those 3years. Should I do it?The bank says it can give me a loan for up to $165,000 at aninterest rate of 12% as long as I pay it back at in 4 years. ShouldI do it? How much should I borrow, or should I not borrow atall?This is all part of one question, but if this counts as morethan one question I would love it if I can get help with at leastthe first part of the question. Thank you!