The amount the bank is willing to loan you to start your business is not enough to cover the initial investment you need to make. You need an additional $10,000. You approach an investor and ask him to invest $10,000 in your business. In return, you offer to pay him $500 out of your profits at the end of years 1-4 and an amount X at the end of year 5. The investor's annual cost of funds is 10%. How big must X be to induce him to invest in your business?
The amount the bank is willing to loan you to start your business is not enough to cover the initial investment you need to make. You need an additional $10,000. You approach an investor and ask him to invest $10,000 in your business. In return, you offer to pay him $500 out of your profits at the end of years 1-4 and an amount X at the end of year 5. The investor's annual cost of funds is 10%. How big must X be to induce him to invest in your business?
Cornerstones of Cost Management (Cornerstones Series)
4th Edition
ISBN:9781305970663
Author:Don R. Hansen, Maryanne M. Mowen
Publisher:Don R. Hansen, Maryanne M. Mowen
Chapter19: Capital Investment
Section: Chapter Questions
Problem 8E
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![The amount the bank is willing to loan you to start your business is not enough to cover the initial investment
you need to make. You need an additional $10,000. You approach an investor and ask him to invest $10,000 in
your business. In return, you offer to pay him $500 out of your profits at the end of years 1-4 and an amount X at
the end of year 5. The investor's annual cost of funds is 10%. How big must X be to induce him to invest in your
business?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fda43665a-684a-40c9-a2eb-2c788bcc1005%2Ffb917f23-4f80-49d3-b8c1-12b64bc2d31b%2Fbgbcsq4_processed.png&w=3840&q=75)
Transcribed Image Text:The amount the bank is willing to loan you to start your business is not enough to cover the initial investment
you need to make. You need an additional $10,000. You approach an investor and ask him to invest $10,000 in
your business. In return, you offer to pay him $500 out of your profits at the end of years 1-4 and an amount X at
the end of year 5. The investor's annual cost of funds is 10%. How big must X be to induce him to invest in your
business?
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