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A new business opportunity has an 85% chance of being worth $750000 next year and a...

A new business opportunity has an 85% chance of being worth $750000 next year and a 15% chance of being worth $150000. The appropriate expected rate of return is 11%. This new opportunity will be financed with a $540000 commercial loan. What must the promised future payoff to the lender be? Round your answer to the nearest dollar.

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Answer #1

The value of business opportunity in next year:

(750000*.85+150000*.15)* PV factor of 1 year @ 11% =(660000)*.901 = $594595

Investment vale of new opportunity = $540000

Promised future payoff = $594595 - $540000 = $54594.59 (Rounded of to $54595)

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