Cirque du Soleil(CDS) is a Canadian entertainment company and the largest contemporary circus producer in the world. Located in the inner-city area of Saint-Michel, it was founded in Baie-Saint-Paul on 16 June 1984 by former street performers Guy Lalibert and Gilles Ste-Croix.

In 2015, CDS bought a practice facility for $80,000 in Chicago at a 15% interest for 30 years (monthly payment).

After five years, or in 2020, interest rates fall, and a new mortgage loan is available at 14 percent for 25 years.

Suppose that the prepayment penalty of 2 percent must be paid on the existing loan, and the lender who is making the new loan available also requires an origination fee of $2,500 plus $25 for incidental closing costs if the new loan is made.

2020 is a tough year for CDS. During Covid, they have had a lot of canceled shows and ended up losing a lot of money.Stephane Lefebvre, CEO of CDS, wants to cut costs and wants to know if they should refinance the mortgage for their Chicago facility and take advantage of lower interest rates. It is useful to know that total cash savings for the 25-year (300-month) period would be much greater than the refinancing costs.

However,can you tell the issue of such calculation?

Yes, it is Time Value Of Money!

The about $18K in savings will not be received immediately, so we must ask whether it is worth "investing," or paying out, the up-front charges (about 4K) for refinancing to save less than $100 per month over the term of the loan.

Let's think about it. Perhaps, the up-front refinancing cost could be invested in a more profitable alternative?

Thus, we need to come up with an opportunity cost, or a rate of return so that we can compare. So, let's summarize it! In other words, what rate of interest, compounded monthly, is earned on the investment of about $4K for 25 years, given that less than 100 per month represents a savings. What is the actual rate of return for refinancing that CDS can compare to other investment opportunities?

Hint: use Rate (PV, nper, PMT, FV)

When you have the rate, make sure to *12 to get the annual rate.

17.57%

16.57%

15.57%

14.57%

Can you show work on how you would do it on excel.