Return annual end of year cash flows

Reference no: EM13333748

You have a project that will return annual end of year cash flows of $500,000 for 5 years. Your project will require and initial investment of $1,200,000. You want to keep all equity in the project and borrow the money to get it going.

(a) (13 pts) If you are willing to merely break even (no payments to yourself) just to get your company going for 5 years, what is the maximum interest you are willing to pay on your loan. Consider only APR with no monthly or daily compounding.

(b) (13 pts) If you must pay yourself $50,000 per year from the project cash flows (to support your family) what is the maximum APR you can pay on your loan?

(c) (14 pts) You find a friendly banker who will lend you the startup capital at 12% APR compounded monthly. You make annual payments. How much can your afford to pay yourself at the end of each year and still make your loan payments??

Reference no: EM13333748

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