Question

2. A S20,000 loan obtained today is to be repaid in equal monthly installments over the next seven years. If the annual interest rate is 6%, compounded monthly, how mnch is to be paid each month? (9) 3. An investment of $150,000 is expected to generate an after-tax cash flow of $100,000 in year one and another $120,000 in year two. The cost of capital is 10%. a. What is the NPV of this project? Based on the NPV technique, is this project acceptable? Explain. (9) b. What is the IRR of this project? Based on the IRR technique, is this project acceptabl Explain. (9)

Answer 1

2

PVordinary Annuity

PVOrdinary Annuity = C*[(1-(1+i/100)^(-n))/(i/100)]

C = Cash flow per period

i = interest rate

n = number of payments

20000= Cash Flow*((1-(1+ 6/1200)^(-7*12))/(6/1200))

Cash Flow = 292.17

Please ask question 3 separately. Only one question with maximum 4 sub parts allowed, thank you