engineering economics
Q3. The Galactic Empire needs to take out a loan to fund Death Star number 5 (if you haven't seen Star Wars, a Death Star is a big super-weapon that can destroy an entire planet - for some odd reason, they keep making bigger versions of this weapon even though every one they make gets destroyed!). It asks for 300,000,000 Imperial Credits (the currency in the galaxy) from the Inter Galactic Banking Clan (the big bank in the galaxy). They approve the loan, but ask them to pay it back it in installments as follows: 70,000,000 due at the end of the first year. 90,000,000 due at the end of the second year. . 80,000,000 due at the end of the third year. . 100,000,000 due at the end of the fourth year. A final payment for an unknown amount at the end of the fifth year to completely pay off the loan. The loan is to be paid with a 15% interest rate. (a) 15% interest is rather high. Based on the details I've given above, what could be a possible reason for the InterGalactic Banking Clan charging this very high interest rate to the Empire? (b) Draw the cash flow diagram for this loan. You can use x to indicate the unknown loan payment. (c) What is the value of x, i.e., the final payment that pays off the loan? Q3. The Galactic Empire needs to take out a loan to fund Death Star number 5 (if you haven't seen Star Wars, a Death Star is a big super-weapon that can destroy an entire planet - for some odd reason, they keep making bigger versions of this weapon even though every one they make gets destroyed!). It asks for 300,000,000 Imperial Credits (the currency in the galaxy) from the Inter Galactic Banking Clan (the big bank in the galaxy). They approve the loan, but ask them to pay it back it in installments as follows: 70,000,000 due at the end of the first year. 90,000,000 due at the end of the second year. . 80,000,000 due at the end of the third year. . 100,000,000 due at the end of the fourth year. A final payment for an unknown amount at the end of the fifth year to completely pay off the loan. The loan is to be paid with a 15% interest rate. (a) 15% interest is rather high. Based on the details I've given above, what could be a possible reason for the InterGalactic Banking Clan charging this very high interest rate to the Empire? (b) Draw the cash flow diagram for this loan. You can use x to indicate the unknown loan payment. (c) What is the value of x, i.e., the final payment that pays off the loan
