Reference no: EM132795843
You are negotiating to make a 10-year loan of $35,000 to "ABC" Company. According to the agreement "ABC" Company will pay the loan in the following manner:
1. $2,500 at the end of Year 1,
2. $5,000 at the end of Year 2,
3. $7,500 at the end of Year 3,
4. $10,000 at the end of Year 4, and
5. a fixed but currently unspecified cash flow at the end of each year from Year 4 through Year 10.
"ABC" Company is essentially a low risk company, so you are confident the payments will be made. Accordingly, you regard an 8% as an appropriate rate of return on a low risk but illiquid 10-year loan. Based on the above given information, answer ALL the questions that are presented on the following page.
Problem 1: What is the value of the payment that will occur in year 5?
Problem 2: What is the total amount that will be paid during the loan's life?
Problem 3: How much should the "ABC" Company pay to payoff the entire amount on July 1st, Year 8?
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