You have decided to purchase a small industrial warehouse. The purchase price is $1 million, and you expect to hold the property for five years. You have narrowed your choice of debt financing to packages to the following two alternatives: • $700,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments (the annual payment will not include any amortization of principal), and $50,000 in up-front financing costs. $750,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments. No up-front financing costs. Required: What is the difference in the present value of these two loan alternatives? Assume the appropriate discount rate is 6 percent. Note: Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars.) Difference in the present value

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
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You have decided to purchase a small industrial warehouse. The purchase price is $1 million, and you expect to hold the property for
five years. You have narrowed your choice of debt financing to packages to the following two alternatives:
• $700,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments (the annual payment will not include any
amortization of principal), and $50,000 in up-front financing costs.
•
$750,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments. No up-front financing costs.
Required:
What is the difference in the present value of these two loan alternatives? Assume the appropriate discount rate is 6 percent.
Note: Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars.)
Difference in the present value
Transcribed Image Text:6 You have decided to purchase a small industrial warehouse. The purchase price is $1 million, and you expect to hold the property for five years. You have narrowed your choice of debt financing to packages to the following two alternatives: • $700,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments (the annual payment will not include any amortization of principal), and $50,000 in up-front financing costs. • $750,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments. No up-front financing costs. Required: What is the difference in the present value of these two loan alternatives? Assume the appropriate discount rate is 6 percent. Note: Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars.) Difference in the present value
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