What is the effective yearly interest rate on the loan

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Reference no: EM13726176

1. Consider a project with the following expected cash flows:

Initial investment (at t=0): - $10,000

Additional cash outflow at t=1: - $ 1,000

Perpetuity from t=3: - $ 2,000

The discount rate is 6%. Calculate the net present value of the project.

2. Suppose a bank offers you a car loan for a car worth £12,000 with an Annual Percentage Rate (APR) of 8%. You are required to pay interest every three months for ten years. What is the effective yearly interest rate on the loan?

3. In the above question (question 6), what is the amount you will have to pay to the bank each quarter?

4. MCRBeerco, a small local brewery, performed a market study examining the viability of the introduction of a low-calorie beer last year. The costs of the market study were £50,000. The study indicated that the local market would be open to the idea of low-calorie beer. The beer could be produced in a (currently) empty building of the company near Oxford Road. Alternatively, this building could be rented out for £30,000 a year to a student union. It is estimated that the low-calorie beer would take away approximately £10,000 per year in cash flows from the company’s existing beer sales. What is the expected cash outflow in year 1 associated with the introduction of the new low-calorie beer?

Reference no: EM13726176

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