A local firm sponsors a student loan program for the children of employees.No interest is charged until graduation, and then the interest rate is 5%. Maria borrows $9000 per year, and she graduates after 4 years. Since tuition must be paid ahead of time, assume that she borrows the money at the start of each year. If Maria makes five equal annual payments, what is each payment? Use the cash flow from when she started borrowing the money to when it is all paid back, and then calculate the internal rate of return for Maria’s loan. Is this arrangement attractive to Maria?

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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A local firm sponsors a student loan program for the children of employees.No interest is charged until graduation, and then the interest rate is 5%. Maria borrows $9000 per year, and she graduates after 4 years. Since tuition must be paid ahead of time, assume that she borrows the money at the start of each year. If Maria makes five equal annual payments, what is each payment? Use the cash flow from when she started borrowing the money to when it is all paid back, and then calculate the internal rate of return for Maria’s loan. Is this arrangement attractive to Maria?

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