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The required years for full repayment are

The required years for full repayment are

Essentials Of Investments
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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A mining project will involve the following cashflows: • Outlays: £1 million, payable immediately; £0.5 million payable annually for 10 years, the first payment being in 1 year's time; £0.25 million payable annually for 2 years, the first payment being in 11 years' time. Income: £0.75 million payable annually for 10 years, the first payment being in 1 year's time. The project is to be financed by borrowing the initial outlay from a bank, which charges interest at the rate of 10% per annum compound. Partial repayment of the loan is possible at any time. After repayment of the entire loan, net income from the project may be deposited with the bank in an account that earns 7% per annum compound, and this account will be used to pay the tail-end costs associated with the project. The required years for full repayment are Select one: a. 8 O b. 4 O c.7 d. 5 e. 6
Transcribed Image Text:A mining project will involve the following cashflows: • Outlays: £1 million, payable immediately; £0.5 million payable annually for 10 years, the first payment being in 1 year's time; £0.25 million payable annually for 2 years, the first payment being in 11 years' time. Income: £0.75 million payable annually for 10 years, the first payment being in 1 year's time. The project is to be financed by borrowing the initial outlay from a bank, which charges interest at the rate of 10% per annum compound. Partial repayment of the loan is possible at any time. After repayment of the entire loan, net income from the project may be deposited with the bank in an account that earns 7% per annum compound, and this account will be used to pay the tail-end costs associated with the project. The required years for full repayment are Select one: a. 8 O b. 4 O c.7 d. 5 e. 6
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