Business, 26.02.2020 01:00 zenaidazurita1p6bs1d

Today is January 1, 2009. The state of Iowa has offered your firm a subsidized loan. It will be in the amount of $10,000,000 at an interest rate of 5 percent and have ANNUAL (amortizing) payments over 3 years. The first payment is due today and your taxes are due January 1 of each year on the previous year's income. The yield to maturity on your firm's existing debt is 8 percent. What is the APV of this subsidized loan? If you rounded in your intermediate steps, the answer may be slightly different from what you got. Choose the closest.

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Answer from: Ruthsybel9754

Annual present value of the Payment is $840,797

Given:

Present value = $10,000,000 029978

Time = 3 year

Rate = 5%

Computation:

Payment = Loan / PVAF (3, 5%)

Payment = $3,672,085

Net present value of Cash Flows;

Cash Flows 0 = $10,000,000

Cash Flows 1= -$3,502,085

= -$3,172,085 - 0.66 × $500,000

Cash Flows 2= -$3,556,011

Cash Flows3= -$3,612,632I = 8%

Annual present value of the Payment = $840,797

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Answer from: sama3638

Complete question:

Today is January 1, 2009. The state of Iowa has offered your firm a subsidized loan. It will be in the amount of $10,000,000 at an interest rate of 5 percent and have ANNUAL (amortizing) payments over 3 years. The first payment is due today and your taxes are due January 1 of each year on the previous year's income. The yield to maturity on your firm's existing debt is 8 percent. What is the APV of this subsidized loan? If you rounded in your intermediate steps, the answer may be slightly different from what you got. Choose the closest.

A. -$3,497,224.43 B. $417,201.05 C.$840,797 D. None of the above

$840,797 is the APV of this subsidized loan

Solution:

Input the loan in a financial equation first and resolve the payment:

PV=10,000,000

N= 3I = 5%

PMT = 3,672,085

Now, find the APV of the loan:

CF0 = $10,000,000

CF1= -$3,502,085

= -$3,172,085 - .66 * $500,000CF2

= -$3,556,011CF3

= -$3,612,632I

= 8%

APV = $840,797

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Today is January 1, 2009. The state of Iowa has offered your firm a subsidized loan. It will be in t...

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