Question
9.A project is expected to generate an annual cash flow of $300,000 before debt service, during each of the first five years of operation. This
9.A project is expected to generate an annual cash flow of $300,000 before debt service, during each of the first five years of operation. This expectation represents the mean of a probability distribution of possible cash flows, and has a standard deviation of $25,000. What is the maximum percentage of the purchase price which can be financed with a 8 percent, 25-year, fully amortizing monthly payment loan, if the investor insists on a .95 probability that the annual cash flow during the first five years will be sufficient to at least cover the debt service?
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