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Jeffrey Yaffe, CFO of Koffee Enterprises, is evaluating a 10-year, 5.10 percent loan with gross proceeds of $5,930,000. The interest payments on the loan will be made annually. Flotation costs are estimated to be 1.20 percent of gross proceeds and will be amortized using a straight-line schedule over the 10-year life of the loan. The company has a tax rate of 35 percent, and the loan will not increase the risk of financial distress for the company.
a. Calculate the net present value of the loan excluding flotation costs.
b. Calculate the net present value of the loan including flotation costs.
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You want to buy a car, and a local bank will lend you $30,000. The loan will be fully amortized over 5 years (60 months), and the nominal interest rate will be 7% with interest paid monthly. What will be the monthly loan payment?
Agatha Concrete Company has been offered by its bank to manage its cash at a cost of $35,000 per year. Under the proposed cash management, the firm can reduce the cash required on hand by $180,000. What recommendation would you give the firm with res..
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