A Super Company urgently needs $600,000.00 for its business; will pay a Willing Sponsor the sum of $102,000.00 per year for the next 8 years for investing that requested sum. An investor, named (Willing Sponsor) decided to take the deal and invest into Super Company, however, the investor (Willing Sponsor) only has $250,000.00 of his own cash available now, and the investor (Willing Sponsor) decided to turn to a Financial Bank to borrow the balance of $350,000.00 to complete the required $600,000.00 to invest. (The Willing Investor) agreed to pay the Financial Bank $60,000.00 per year for 8 years at a rate of 12%. The Financial Bank is satisfied with getting the rate of 12% for the money. The investor (Willing Investor) will provide the investment as agreed to the Super Company at the rate of 20% for the total investment.
NPV Problems:
Find the investor’s (Willing Investor’s) rate of return
Find the Financial Bank’s rate of return
Was it a sensible venture for the Financial Bank?
Was it a sensible venture for the Willing Investor?
Would it have been better for the Super Company to negotiate the payment back to the (Willing Investor) for only 7 years? Instead of 8?