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Expected Cash Flow After Debt Service

An owner is planning to retire after the coming year. She has to repay a loan $50,000 plus 8 percent interest and must rely on cash flow from operations to do so. Cash flow from operation is uncertain; there is a 70% probability it will equal $65,000, and a 30% probability it will equal $45,000. Assuming a tax rate of 0%, what is the owner's expected cash flow after debt service?


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Dear Student:

Loan payment in one year with 8% interest = loan amount + interest = 50000 + (0.08)*50000 = 50000 + 4000 = ...

Solution Summary

This solution calculates a business owner's expected cash flow when he retires next year. The expected cash flow from operations is estimated and a loan payment with interest is taken care of.