5. 6.5 You and three college buddies have formed a company, Right For You, Inc., that will customize off-the-shelf marketing software locally rather than contracting with the original development company or a large, nationally based customizer. The target clients are bricks-andmortar merchants and smaller e-commerce businesses. Because of your unique approach to this type of software tailoring, a venture capitalist group (individuals or companies that invest in innovative start-ups at low rates and a percentage of the business for the future) has agreed to invest in your start-up with $1 million to be recovered from business proceeds at a low interest rate of 3% per year over a 4-year period, and a 15% share in Right For You. During the negotiations with the venture capitalist, you did not ask about the basis of the 3% interest. To help your partners understand the finances, determine the following:
1. The minimum revenue needed to recover the $1 million investment and earn the 3% per year during the life of the loan.
2. The difference in the equal annual payments if loan interest is charged on the principal rather than on the unpaid balance.
3. The difference in the unpaid balance immediately after the first payment, i.e., end of year 1, if loan interest is charged on the principal rather than on the unpaid balance.