Net present value profile, Loan repayment
Not what you're looking for?
21. Software Systems is considering an investment of $20,000, which produces the following inflows:
Year Cash Flow
1 $11,000
2 $ 9,000
3 $ 5,800
You are going to use the net present value profile to approximate the value for the internal rate of return. Please follow these steps:
a. Determine the net present value of the project based on a zero discount rate.
b. Determine the net present value of the project based on a 10 percent discount rate.
c. Determine the net present value of the project based on a 20 percent discount rate (it will be negative).
d. Draw a net present value profile for the investment. (Use a scale up to $6,000 on the vertical axis, with $2,000 increments. Use a scale up to 20 percent on the horizontal axis, with 5 percent increments.)Observe the discount rate at which the net present value is zero. This is an approximation of the internal rate of return on the project.
e. Actually compute the internal rate of return based on the interpolation procedure presented in this chapter. Compare your answers in parts d and e.
36. If your uncle borrows $60,000 from the bank at 10% interest over the 7 year life of the loan, what equal annual payments must be made to discharge the loan, plus pay the bank its required rate of interest ? How much of his first payment will be applied to interest? To principal? How much of his second payment will be applied to each?
Purchase this Solution
Solution Summary
The solutions answers 2 questions: One of calculation of NPV, IRR, drawing the NPV profile; the other on loan repayments
Purchase this Solution
Free BrainMass Quizzes
Situational Leadership
This quiz will help you better understand Situational Leadership and its theories.
Learning Lean
This quiz will help you understand the basic concepts of Lean.
Transformational Leadership
This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.
SWOT
This quiz will test your understanding of the SWOT analysis, including terms, concepts, uses, advantages, and process.
Basic Social Media Concepts
The quiz will test your knowledge on basic social media concepts.