Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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You have decided to purchase a small industrial warehouse. The purchase price is $1 million, and you expect to hold the
property for five years. You have narrowed your choice of debt financing to packages to the following two alternatives:
0
$700,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments (the annual payment will not
include any amortization of principal), and $50,000 in up-front financing costs.
$750,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments. No up-front financing costs.
Required:
What is the difference in the present value of these two loan alternatives? Assume the appropriate discount rate is 6
percent.
Note: Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars.)
Difference in the present value
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Transcribed Image Text:You have decided to purchase a small industrial warehouse. The purchase price is $1 million, and you expect to hold the property for five years. You have narrowed your choice of debt financing to packages to the following two alternatives: 0 $700,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments (the annual payment will not include any amortization of principal), and $50,000 in up-front financing costs. $750,000 loan, 6 percent interest rate, 30-year term, annual, interest-only payments. No up-front financing costs. Required: What is the difference in the present value of these two loan alternatives? Assume the appropriate discount rate is 6 percent. Note: Do not round intermediate calculations. Enter your answers in dollars, rather than in millions of dollars.) Difference in the present value
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