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a small buiness is recieving a five year $1,000,000 loan at subsidized rate of 3% per year....

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Finance

asmall buiness is recieving a five year $1,000,000 loan atsubsidized rate of 3% per year. the firmwill pay 3% annual interestpayment each year and the principal at the end of five years. ifmarket interest rate on similar loans is 6% per year what is theNPV of the loan? ignore tax

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4.0 Ratings (514 Votes)

loan amount (Maturity of loan amount)=   1000000  
Interest paid each year 3% = 1000000*3%=   30000  
Market interest rate (i)= 6% or   0.06  
Time (n)=   5  
Present value of ínterest and Loan paid formula = ínterest amount * (1 - (1/(1+i)^n)/i + loan/(1+i)^n      
30000*(1-(1/(1+0.06)^5))/0.06 + 1000000/(1+0.06)^5      
873629.0864      


This is Present value of outflow that is   873629.0864  
loan received (present value of inflow)=   1000000  


NPV = present value of inflows - present value of outflow      
1000000   -873629.0864  
126370.9136


So NPV of loan is   $126,370.91  

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asmall buiness is recieving a five year $1,000,000 loan atsubsidized rate of 3% per year. the firmwill pay 3% annual interestpayment each year and the principal at the end of five years. ifmarket interest rate on similar loans is 6% per year what is theNPV of the loan? ignore tax

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