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1. Five years ago you borrowed $100,000 to finance the purchase of a $120,000 house. The interest rate on the old mortgage is 10%. Payment terms are being made monthly to amortize the loan over 30 years. You have found another lender who will refinance the current outstanding loan balance at 8% with monthly payments for 30 years. The new lender will charge two discount points on the loan. Other refinancing costs will equal $3,000. There are no prepayment penalties associated with either loan. You feel the appropriate opportunity cost to apply to this refinancing decision is 8%.
a. What is the payment on the old loan?
b. What is the current loan balance on the old loan (five years after origination)?
c. What should be the monthly payment on the new loan?
d. Should you refinance today if the new loan is expected to be outstanding for five years?
2. What is the IRR, assuming an industrial building can be purchased for $250,000 and is expected to yield cash flows of $18,000 for each of the next five years and be sold at the end of the fifth year for $280,000?
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The solution is on finding IRR of a project with uniform cash inflows and salvage value. The solution has been done in microsoft word
parent inc. is contemplating a tender offer to acquire 80 of subsidiary corporations common stock. subsidiarys shares
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relation to the global economy and financial markets.
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