Answer to Question #232593 in Management for hari

Question

In trying to decide whether or not to revise the book they have estimated cashflows relevant to this project. The revision will cost Rs 400,000 which must be paid today if you decide to undertake the revision. Cash inflows from increased sales of the revised version will be Rs.100,000 at the end of first year , Rs. 107,000 at the end of second year , Rs.114,500 at the end of third year and , Rs.122,500 and Rs. 131,100 at the end 4th and 5th years respectively .The book will go out of print in 5 years from now. This company requires 10% return from such an investment. You are planning to obtain a bank loan for the sum of Rs 400,000 for this purpose and you would pay off in 4 equal annual instalments at the beginning of every year . The bank charges interest at 10 %.

What is the value of an instalment of the loan you are planning to obtain?

Prepare the loan amortization schedule.

Answer 1

a)

Installments help investors decide how much they would be willing to pay today for a stream of cash flows in the future

b) $400000* 10/100= 40000$