Laura wants to buy a delivery truck. The truck costs $59,000, and will allow her to increase her after tax profits by $33,000 per year for the next 10 years. She will borrow 98% of the cost of the truck for 10 years, at an interest rate of 6%. Laura's unlevered cost of capital is 11% and her tax rate is 39%. The loan includes a $2,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.

Laura wants to buy a delivery truck. The truck costs $59,000, and will allow her to increase her after tax profits by $33,000 per year for the next 10 years. She will borrow 98% of the cost of the truck for 10 years, at an interest rate of 6%. Laura's unlevered cost of capital is 11% and her tax rate is 39%. The loan includes a $2,000 application fee. What is the NPV of buying the truck on these terms? Please use the APV method.

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Vickie decides to sell her current home and move to a larger home. She estimates that she can sell her current home for $2,000,000 and can buy a larger home for 6,000,000. She plans to use the entire $2,000,000 sale proceeds as a down payment on the new home and will finance the remainder for 10 years at 6% nominal annual interest compounded monthly. What is her estimated monthly mortgage payment? Christine wants to be able to purchase a dream car for about $50,000 on January 1, 2028, just after she graduates from graduate school. She has a full-time job and started making deposits of $730 each month into an account that pays 6% compounded monthly beginning with the first deposit on February 1, 2023. The last deposit is to be made on January 1, 2028. Determine how much money she would have saved to buy the car. Will she be able to buy her dream car?
Ellen is shopping for a truck and has up to $325 to spend biweekly at a dealership in Selkirk, MB where the PST + GST is 12%. She wants to pay the truck off in 5 years. She has a down payment of $1400. The dealership will finance the truck at an interest rate of 4.95%. a. How expensive a truck can Ellen afford to buy? b. How much interest will Ellen pay over the course of the loan?
Ms. Towne is buying a home for $250,000 and is putting down 20 percent cash on the purchase. She is financing the rest with a 30-year, fixed-rate mortgage with a rate of 5 percent but is considering an option that would allow her to make biweekly payments. How long would it take to pay off the loan if she chooses the biweekly payments option?
Wilma wants to buy a car that costs $52,000. She has arranged to borrow the total purchase price of the car from her bank at 6 percent interest rate. The loan requires monthly payments for a period of five years. If the first payment is due in one month after purchasing the car, what will be the amount of Wilma’s monthly payment on the loan?
My daughter wants to buy a new car. Here are the parameters. The car cost $12,000 with terms of 5% APR over five years. She has $3000 saved up and is ready to put down on the loan. 1. What is the actual annual percentage rate she will be charged if she pays all of the $3000 as a down payment for the five years? What will her monthly payments be? 2. Would it be better (cheaper) for her to pay $1000 down now, borrowing the rest, but in 1 year pay the other $2000 put towards principal? How will this affect the loan?
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6) Susan is looking to purchase her first home five years from today. The house costs $1,550,000. She will have to make a down payment of 10% of this amount and plans to take a loan from the bank for the difference. Bank charges are approximately 15% of the loan amount. She plans to start saving from today to cover both the down payment and the bank charges. a. How much will she need to save to cover both the down payment and bank charges? b. If she currently has $195,000 in her account and will make no further deposits over the next five years, what rate of interest must she earn on this account in order to achieve the savings target calculated in part (a) above?
Loni buys a machine for her business. The machine costs $280,000. Loni estimates that the machine can produce a $64,000 cash inflow per year for the next 9 years. Loni's cost of capital is 7 percent. What is the approximate present value of the cash flow benefits for Loni?
Alex wants to buy a shopping complex in Vancouver 3 years after completing his Masters. The complex will cost CAD 17,000,000 and he would need a 20% down payment after 5 years. To save for the down payment, Alex could deposit one lump sum today at a 6% annual compound rate. Alternatively, Alex can wait one year and make one lump sum deposit. Will Alex need more money to deposit if she does it now or after one year? How much more is required? (Use Formula Approach)
Cindy and Rick purchased a home for $145,000 and financed it with a 30-year fixed-rate loan at 6.25% annual interest. If they put a 20% down payment on the house, what would be their monthly payment for principal and interest?
Davadene has two student loans. one is for $8000 at an APR of 5% for 10 years; the second is for $15,000 at an interest rate of 6% for 12 years. Davadene is considering consolidating the loans and has found a bank that will loan her $23,000 for 8 years at an annual interest rate of 5.5%. If she is trying to pay off the loans and pay the least amount of interest, should Davadene take the consolidation option? Defend your answer.
Pete Morton is planning to go to graduate school in a program of study that will take three years. Pete wants to have $13,000 available each year for various school and living expenses. If he earns 7 percent on his money, how much must be deposited at the start of his studies to be able to withdraw $13,000 a year for three years?

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