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

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jeff jeffy answered 11 months ago

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

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