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

a small buiness is recieving a five year $1,000,000 loan at subsidized rate of 3% per year. the firmwill pay 3% annual interest payment each year and the principal at the end of five years. if market interest rate on similar loans is 6% per year what is the NPV of the loan? ignore tax

Expert Solution

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.

jeff jeffy answered 9 months ago

Prepare an amortization schedule for a five-year loan of $84,000. The interest rate is 8% per...

Prepare an amortization schedule for a five-year loan of $84,000. The interest rate is 8% per year and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loan? Provide another amortization schedule if you must pay $8,400 toward the principle each year instead of equal annual payments. How much interest is paid in the third year? Explain why the third year interest...

Prepare amortization schedule for a five-year loan of $167,500. The interest rate is 17 percent per...

Prepare amortization schedule for a five-year loan of $167,500. The interest rate is 17 percent per year and the loan calls for equal annual payments. How much interest is paid in the third year? How much total interest is paid over the life of the loan? (No excel sheet)

Eligibility for a subsidized Stafford loan is based on current financial need. However, both subsidized and...

Eligibility for a subsidized Stafford loan is based on current financial need. However, both subsidized and unsubsidized Stafford loans are repaid out of future income. Given this, do you see a possible objection to having two types?

You have a loan of 600,000, Rate is 3%. and it is a Twenty year loan...

You have a loan of 600,000, Rate is 3%. and it is a Twenty year loan questions. a.what is the your constant cash flow? b.what is the interest payment in year 12? C.what is the amortization of the loan in year 13?

1) Epitome Healthcare has just borrowed $1,000,000 on a five-year, annual payment term loan at a...

1) Epitome Healthcare has just borrowed $1,000,000 on a five-year, annual payment term loan at a 15% rate. The first payment is due one year from now. Construct the amortization schedule for this loan. 2) John Adams is the CEO of a nursing home in San Jose. He is now 50 years old and plans to retire in ten years. He expects to live for 25 years after he retires – that is, until he is 85. He wants a...

There is a 5-year, $80,000 loan is secured at a nominal rate of 4% per year,...

There is a 5-year, $80,000 loan is secured at a nominal rate of 4% per year, compounded quarterly. If immediately after making your second quarterly payment you decide to pay off the loan, what would be the balance amount? Draw a cash flow diagram for the answer and list all of calculation steps with an explanation sentence.

Question

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

Solutions

Expert Solution

Related Solutions

Prepare an amortization schedule for a five-year loan of $84,000. The interest rate is 8% per...

Prepare amortization schedule for a five-year loan of $167,500. The interest rate is 17 percent per...

Eligibility for a subsidized Stafford loan is based on current financial need. However, both subsidized and...

You have a loan of 600,000, Rate is 3%. and it is a Twenty year loan...

1) Epitome Healthcare has just borrowed $1,000,000 on a five-year, annual payment term loan at a...

There is a 5-year, $80,000 loan is secured at a nominal rate of 4% per year,...

What is the primary advantage of the subsidized Stafford Loan over the Unsubsidized Stafford Loan? What...

a payment on a loan is made quarterly at a nominal rate of 9% per year...

You have three year loan of 60000. the interest rate is 7% per year, and the...

You get a $13,000 loan over a five-year period at 10% per year interest. The payments...