Question

In: Finance

You are interested in investing in a new business in 5 years time that has a...

You are interested in investing in a new business in 5 years time that has a total cost of $10 million. The schedule of payments for the business comprise; $500 000 today, $2 million at the end of year 2 and the remainder at the end of year 5.

To pay for the new business you have access to the following savings; $3.8 million today and $3 million in 3 years time. On any savings you can earn 10% p.a. compounded half-yearly in an account with the Wacpac Bank. You want to pay for any shortfall in savings for the investment by depositing an equal annual end of year amount into the Wacpac Bank account over the next 5 years.

Required:

(1) What is the approximate effective interest rate earned on your savings?

(2) What is the approximate present value today of the total payments required for the new business?

(3) What is the approximate annual end of year amount required to meet the new business schedule of payments?

Solutions

Expert Solution


Related Solutions

You are interested in investing in a new business in 5 years time that has a...
You are interested in investing in a new business in 5 years time that has a total cost of $10 million. The schedule of payments for the business comprise; $500 000 today, $2 million at the end of year 2 and the remainder at the end of year 5. To pay for the new business you have access to the following savings; $3.8 million today and $3 million in 3 years time. On any savings you can earn 10% p.a....
You are interested in investing in a building costing £500,000 for a period of three years....
You are interested in investing in a building costing £500,000 for a period of three years. You can either rent out the building as is (Option A) or install an assortment of energy-efficient fittings at an additional cost of £20,000 (Option B). Regardless of the option chosen, assume that a tenant takes immediate occupation, paying an annual rent in arrears. Maintenance expenses and the sale of the building also take place at the end of the year. Option A Option...
Think of a business you may be interested in starting and take the time to address...
Think of a business you may be interested in starting and take the time to address the following questions in detail (please include the question numbers below when you answer each question): 1. What kind of resources would you need to acquire to operate this business? 2. Which costs are implicit costs? 3. Which resources are fixed and which are variable? 4. Explain the difference between fixed and variable costs for this business. 5. Explain how this business could experience...
Think of a business you may be interested in starting and take the time to address...
Think of a business you may be interested in starting and take the time to address the following questions in detail (please include the question numbers below when you answer each question): 1. What kind of resources would you need to acquire to operate this business? 2. Which costs are implicit costs? 3. Which resources are fixed and which are variable? 4. Explain the difference between fixed and variable costs for this business. 5. Explain how this business could experience...
KFA is considering investing in a new drone technology costing $12 million. It has a 5...
KFA is considering investing in a new drone technology costing $12 million. It has a 5 year life (no salvage value) and will save KFA $3.5 million/year in pre-tax operating costs. It will need an up-front working capital investment of $300,000. KFA's cost of capital is 8.0% and its tax rate is 21.0%. Their current technology has a $5 million book value but a $1 million salvage value. What are the NPV and IRR of the decision to replace the...
KFA is considering investing in a new drone technology costing $12 million. It has a 5...
KFA is considering investing in a new drone technology costing $12 million. It has a 5 year life (no salvage value) and will save KFA $3.5 million/year in pre-tax operating costs. It will need an up-front working capital investment of $300,000. KFA's cost of capital is 8.0% and its tax rate is 21.0%. Their current technology has a $5 million book value but a $1 million salvage value. What are the NPV and IRR of the decision to replace the...
Show Work, Please. Excel Preferably. Suppose you are considering investing in a new business that will...
Show Work, Please. Excel Preferably. Suppose you are considering investing in a new business that will cost $10 million. A bank is willing to lend you $7 million for the purchase with equity holders having to provide the remainder of the funds. the terms of the loan are: a 20-year loan with yearly payments at a fixed rate of 3%. You will sell the business after year 8. You estimate the business will have the following profits in years 1-8:...
Mona has started a new business and is interested in increasing equity. Discuss some ways in...
Mona has started a new business and is interested in increasing equity. Discuss some ways in which she can achieve this goal. Be specific!
You are investing $20,000 for 40 years at 5% annual compounded interest.  Fill out a table that...
You are investing $20,000 for 40 years at 5% annual compounded interest.  Fill out a table that shows the future value of your investment using various intervals of compounding:  annual, quarterly, monthly, daily.  Your work should be represented in the following table.  Use normal rounding conventions and appropriate units. COMPOUNDING INTERVAL ANNUALLY QUARTERLY MONTHLY DAILY   FORMULA USED FUTURE VALUE
   5. A new young mother has opened a cloth diaper service. She is interested in...
   5. A new young mother has opened a cloth diaper service. She is interested in simulating the number of diapers required for a one-year- old. She hopes to use this data to show the cost effectiveness of cloth diapers. The table below shows the number of diapers demanded daily and the cumulative probabilities associated with each level of demand.    Daily Demand Cumulative Probability            Interval of       Random Numbers               5 0.30              01-30               6 0.80             ...
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT