An investor is looking at building a factory to make gizmos. He estimates that it would cost $150,000 to build this factory from scratch. He reckons that his returns from the sale of gizmos would be $20,000 at the end of year 1, 35,000 in year 2, 40,000 in year 3, 60,000 in year 4 and 75,000 in year 5. The bank currently offers an interest rate of 8% on loans. The investor does his calculations and goes to present his proposal to the bank manager. Would the bank manager approve the loan? Why? Calculate the investor's exact MEC? Make sure to show every step in the calculations to get full marks. Round off to whole numbers.

An investor is looking at building a factory to make gizmos. He estimates that it would cost $150,000 to build this factory from scratch. He reckons that his returns from the sale of gizmos would be $20,000 at the end of year 1, 35,000 in year 2, 40,000 in year 3, 60,000 in year 4 and 75,000 in year 5. The bank currently offers an interest rate of 8% on loans. The investor does his calculations and goes to present his proposal to the bank manager. Would the bank manager approve the loan? Why? Calculate the investor's exact MEC? Make sure to show every step in the calculations to get full marks. Round off to whole numbers.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 10PB: Bouvier Restaurant is considering an investment in a grill that costs $140,000, and will produce...

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