Question

Please solve by hand

A company is investing in a new expansion project which will cost $180,000 paid over 3 equal payments of $60,000. one payment is due now, one at the end of the first year and one at the end of the 2nd year. The project will start generating revenues of $44,000 per year at the end of the third year and up to and including the 10th year. Minimum Acceptable Rate of Return (MARR) = 8%. Please note that because this project is an investment, MARR provides the mathematical interest rate used for calculations (i).

a) Draw the cash flow diagram (CFD) for this investment showing cost and revenue components of the CFD.

b) If all the initial costs needed for this investment are to be financed from a line of credit. What is remarkable about a line of credit, as opposed to a loan, is that you can borrow the money whenever you want. Interest will only accrue after you borrow. The credit limit will always be available, even if you choose not to use it. That is, money can be borrowed whenever needed from an account up to $500,000.

Find the maximum interest rate for this line of credit so that the project is feasible. The company decided to pay back this money to the line of credit as a lump sum (one payment) at the end of the project (whenever the last revenue is received.

Answer 1

Answer provided in excel sheet