An investor is looking at building a factory to make gizmos. He estimates that it would cost $150,000 to build this factory from scratch. He reckons that his returns from the sale of gizmos would be $20,000 at the end of year 1, 35,000 in year 2, 40,000 in year 3, 60,000 in year 4 and 75,000 in year 5. The bank currently offers an interest rate of 8% on loans. The investor does his calculations and goes to present his proposal to the bank manager. Would the bank manager approve the loan? Why? Calculate the investor's exact MEC? Make sure to show every step in the calculations to get full marks. Round off to whole numbers.

FINANCIAL ACCOUNTING
10th Edition
ISBN:9781259964947
Author:Libby
Publisher:Libby
Chapter1: Financial Statements And Business Decisions
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An investor is looking at building a factory to
make gizmos. He estimates that it would cost
$150,000 to build this factory from scratch. He
reckons that his returns from the sale of gizmos
would be $20,000 at the end of year 1, 35,000 in
year 2, 40,000 in year 3, 60,000 in year 4 and
75,000 in year 5. The bank currently offers an
interest rate of 8% on loans. The investor does
his calculations and goes to present his
proposal to the bank manager. Would the bank
manager approve the loan? Why? Calculate the
investor's exact MEC? Make sure to show every
step in the calculations to get full marks. Round
off to whole numbers.
Transcribed Image Text:An investor is looking at building a factory to make gizmos. He estimates that it would cost $150,000 to build this factory from scratch. He reckons that his returns from the sale of gizmos would be $20,000 at the end of year 1, 35,000 in year 2, 40,000 in year 3, 60,000 in year 4 and 75,000 in year 5. The bank currently offers an interest rate of 8% on loans. The investor does his calculations and goes to present his proposal to the bank manager. Would the bank manager approve the loan? Why? Calculate the investor's exact MEC? Make sure to show every step in the calculations to get full marks. Round off to whole numbers.
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