Madeleiene has been operating a restaurant and caf in an old building downtown. Because of her cafs popularity and the cafs old kitchen, she has had trouble keeping up with the demand for her famous croissants. Due to the success of her business, Madeleine has been approved for a loan of $62,000 to cover the cost of a new oven, walk-in freezer, industrial refrigerator, and industrial coffee machine. The new kitchen appliances will drastically lower her operating costs and will raise receipts by making the caf more efficient. Consequently, real net returns will increase by $14,000 per year. To afford the investment, Madeleine will have to take out a loan of $52,000 at a 7% interest rate and a term of 9 years. Madeleine has assumed an investment life of 4 years, straight-line depreciation of 8 years, an inflation rate of 3%, a risk premium of 2%, a required rate of return of 12%, a marginal tax rate of 24%, and a real terminal value of $30,000.

What is Madeleines down payment?

a.$12,000

b.$7,000

c.$10,000

d.$15,000

What is the after-tax, risk-adjusted discount rate?

a.12%

b.9.12%

c.10.64%

d.7.94%

What is the interest payment in year 2?

a.$2,921.35

b.$3,240

c.$3,336.11

d.$3,275.71

What are the tax savings from interest in year 1?

a.$873.60

b.$777.60

c.$858.60

d.$786.17

What is the book value of the loan after 4 years?

a.$27,416.49

b.$32,724.89

c.$33,222.46

d.$20,987.31

What is Net Cash Flow after debt in year 1?

a.$5,711.50

b.$12,706

c.$11,033.36

d.$5,516.12