Repay an existing bank loan outstanding. The company has a $200,000 loan outstanding from a local...

Repay an existing bank loan outstanding. The company has a $200,000 loan outstanding from a local community bank. The interest rate on the loan is 11.5 percent (fixed). Interest payments on the loan are due at the end of each year and the loan balance matures in full in five years. Repay Loan Investment (Outflow) = $200,000 Discount Rate = 10% Annual Interest On The Loan = $200,000 X 11.5% =$23,000

NPV=

Expert Solution

Present value of loan outflow = Loan ampount*(present value factor at 10%,5 years)+interest payment*(Present value annuity factor at 10%,5years)

loan amount = $200,000

interest amount = $23,000

present value factor at 10%,5 years = 0.62092

present value annuity factor at 10%,5 years = 4.16987

Present value of loan outflow = (200,000*0.62092)+(23000*4.16987)

=$220091

Therefore NPV = $200,000-$220,091 = -$22,091

ekkarill92 answered 1 year ago

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