An entrepreneur is considering a business project that will be financed by an unrestricted loan (effectively an overdraft). The only outlay required is an initial cost of $80,000. The income is received annually in arrears. At the end of the first year the income is expected to be $8,800 and inflation is expected to increase this each year thereafter by 10% pa compound. The entrepreneur may borrow and invest money at 12% pa interest.''
what is the accumulated profit at the end of the twelve years?
the answer is just accumulating the NPV I.e.(5555 * 1.12 ^12).
why don't we consider the interest produced by the loan and the loan itself? I think the way to solve the question should be repaying the initial cost 80,000 first as a flexible borrowing, then accumulating the remaining cashflows to the twelfth year.
Can somebody help me? Thanks
Last edited by a moderator: Jul 14, 2017
