Question 3

A potential client has offered the possibility to sign a contract, starting in 5 years, with a duration of 8 years (so it will produce 8 payments), to purchase a specific part that we can produce, but that will require a total reconversion of the whole factory. This contract is signed for annual revenues of $500,000. To do this, we must replace the machinery and the production plant must be reconverted.

1. What is the maximum amount of money we could afford to invest if we want a profitability of at least 5%?
2. If we ask for a loan to be paid back in 5 years in constant equal monthly payments of $20,000, how much will we pay in total for the loan?