Question
1.Joan Messineo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal, annual,
1.Joan Messineo borrowed $15,000 at a 14% annual rate of interest to be repaid over 3 years. The loan is amortized into three equal, annual, end-of-year payments (each payment includes the annual interest + the annual repayment of part of the principal).
a)Calculate the annual, end-of-year loan payment.
b)Calculate the Net Present Value (NPV) of this bank investment. If the NPV=0 would you advise the bank to conclude this deal. If the answer is yes or no calculate the Internal Rate of Return of the bank. Justify your answer?
c)If the WACC of the bank's funds is 14% and based on the IRR you calculated in d, would you advise the bank to grant this loan to this client. Justify your answer?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started