Assume that as a local government financial analyst you are asked to project the feasibility of a loan to a proposed public service venture for its start-up funding. The venture’s principals estimate that, at the end of 5 years, they will be able to pay back up to $800,000 from revenues accruing to the venture’s activities. Assuming that your organization’s current “average cost of capital” is 4.8% (the “discount rate”). Assuming monthly compounding, what is the maximum amount your government can commit to the venture for its start-up?

Question

Assume that as a local government financial analyst you are asked to project the feasibility of a loan to a proposed public service venture for its start-up funding. The venture’s principals estimate that, at the end of 5 years, they will be able to pay back up to $800,000 from revenues accruing to the venture’s activities. Assuming that your organization’s current “average cost of capital” is 4.8% (the “discount rate”). Assuming monthly compounding, what is the maximum amount your government can commit to the venture for its start-up?

Expert Answer

Want to see the step-by-step answer?

See Answer

Check out a sample Q&A here.

Want to see this answer and more?

Experts are waiting 24/7 to provide step-by-step solutions in as fast as 30 minutes!*

See Answer
*Response times vary by subject and question complexity. Median response time is 34 minutes and may be longer for new subjects.

Related Finance Q&A

Find answers to questions asked by student like you

Q: On January 1 of Year 1, Congo Express Airways issued $3,500,000 of 7% bonds that pay interest semian...

A: Calculation of Amount of Bond Discount:The bond premium is $10,087 for six months. The bond premium ...

Q: The potential loss incurred from purchasing a call option is finite, but the potential loss to the s...

A: Let's figure out the payoff to the seller  or writer of the call option at the time of expiration of...

Q: A firm with sales of $500,000 has average inventory of $200,000. T he industry average for inventory...

A: Computation of inventory turnover:

Q: Boeing Corporation or Northrop Grumman, for Goldman Sachs. You are anaggressive investment portfolio...

A: Click to see the answer

Q: Whispering Pines Inc. is all-equity-financed. The expected rate of return on the company's shares is...

A: a.The opportunity cost of capital will still be 9.65%. Because the company is an equity financed com...

Q: Case Study #3: Chapter 6 Business Analysis -  A business can be valued by capitalizing its earnings ...

A: You have asked a question with five sub parts. I will address the first three sub parts. Please post...

Q: A store will give you a 4.00% discount on the cost of your purchase if you pay cash today. Otherwise...

A: Let's assume the cost of purchase is C. On immediate payment,Discount = 4%Hence, the discounted cost...

Q: The prices of a certain security follow a geometric Brownian motion with parameters mu=.12 and sigma...

A: Let's pull together all the variables of Black Scholes Model:S = Current stock price = 40K = Strike ...

Q: The principal P is borrowed at a simple interest rate r for a period of time t. Find the simple inte...

A: If P is the principal amount, r is the simple interest rate per annum expressed in %age and t is the...

Q: If the volatility of a stock is .33, find the standard deviation of: (see the attachment for the rem...

A: Recall the Black Scholes model derivation.Log of the stock price is normally distributed.The expecte...

Q: The following numbers were randomly generated from a standard normal distribution: -0.25    0.3     ...

A: The formula for simulated price,S based on the initial closing price of S0 will be given by the equa...

Q: (#11) Genoa Company is considering a new investment whose data are shown below. The equipment would ...

A: Approach:We will first estimate the initial investment, i.e cash flow at t = 0We will then plot the ...

Q: Belotti Company just paid a dividend of $1.67 per share to its stockholders. Market analysts believe...

A: Calculation of Required Return:

Q: What capital components are typically included when estimating a firm’s corporate cost of capital? I...

A: Before we address the question, let's understand a bit about the capital itself.Capital:Capital is a...

Q: Assume a security follows a geometric Brownian motion with volatility parameter sigma=0.2.  Assume t...

A: You have stated that "I got an answer of $3.00 for the cost of the call option" and then you have st...

Q: Stock in CDB Industries has a beta of 1.13. The market risk premium is 7.3 percent, and T-bills are ...

A: Expected dividend is computed and then dividend yield is computed.Cost of equity is eqqual to Divide...

Q: Storico Co. just paid a dividend of $1.45 per share. The company will increase its dividend by 24 pe...

A: D0 = $1.45;Year1 growth rate = g1 = 24%;Year 2 growth rate, g2 = g1 - 6% = 24% - 6% = 18%Year 3 grow...

Q: How long will it take for money to double if invested at 6% compounded quarterly?

A: Compounded Interest:           It is the method of calculating interest at the initial amount of pri...

Q: Value/other investment criteria (i Saved Help Save Consider the following two projects: Cash flows P...

A: Hi. As per the guidelines we are allowed to answer the first four parts of a sub-part question. Kind...

Q: The future value of a $100 investment today at 8 percent annual interest compounded semiannually for...

A: Future Value It is the value of an investment after holding the same for specific amount of years ba...

Q: If the interest rate per day is 0.014%, then what is the annual rate?

A: Interest rate:An interest rate is a percentage on the principal amount at which a lender gives money...

Q: Hero Manufacturing has 8.5 million shares of common stock outstanding. The current share price is $7...

A: As a first step we need to calculate the weigthed average pre tax cost of debt based on the characte...

Q: What are investment assets ?

A: Investment Assets: Investment assets are termed as tangible or intangible things that are acquired f...

Q: Here are some historical data on the risk characteristics of Ford and Harley Davidson. Harley Davids...

A: Since you have asked a question with five sub parts, I will address the first three sub parts. Pleas...

Q: Assume​ Evco, Inc., has a current stock price of $39 and will pay a $1.80 dividend in one​ year; its...

A: Calculation of Expected Price:

Q: What is the effective, compound rate of interest you earn if enter into a repurchase agreement in wh...

A: Calculation of Compound Rate of Interest:The compound rate of interest can be calculated using a exc...

Q: Let C be the price of a call option to purchase a security whose present price is S.  Explain why C ...

A: Options are derivative contracts and the amount that we pay to buy an option is called premium.

Q: Growth Company's current share price is $19.95 and it is expected to pay a $1.00 dividend per share ...

A: Since your question has multiple sub parts, I will address first three of them. Please post the bala...

Q: A devoted Indiana basketball fan needs $11,200.00 to attend the Final Four exactly one year from tod...

A: As a first step let's assign a symbol to each of the information we have:Future value, FV = $ 11,200...

Q: You bought a home for $150,000 and put down 10% and got a mortagage at an interest rate of 4.35% per...

A: We will make use of the PMT function in Microsoft Excel to determine the monthly payment on the mort...

Q: The level of the Syldavian market index is 21,300 at the start of the year and 25,800 at the end. Th...

A: Part (a)As a first step let's assign a symbol to all the information we have in the question.I0 = In...

Q: Block, S., Hirt, G., & Danielsen, B. (2017). Foundations of Financial Management. New York, NY: ...

A: a.Calculation of Break-Even point in bags:

Q: Simone's Sweets is an all-equity firm that has 9,100 shares of stock outstanding at a market price o...

A: As is situation: All equity, no debt, hence no interest payment, Let T be the tax rate.Hence, Pre ta...

Q: What is the present value of an annuity that pays $200 per month for 10 years if money is worth 5% c...

A: Present Value:It is the discounted value of cash flows of different period or sum of future money fr...

Q: ABC Enterprises' noncallable bonds currently sell for $1,048.50. They have a 5-year maturity, an ann...

A: The yield to maturity of a bond can be calculated using the RATE function in excel. Inputs are:Perio...

Q: You are considering a project with an initial cost of $7,800. What is the payback period for this pr...

A: Calculation of Payback Period:Using Excel Spreadsheet:

Q: Discuss the pros and cons of a 30 year, fixed rate loan.  In addition, should Congress and state leg...

A: The following are some pros of a 30-year fixed rate loan:Higher tax deduction: The present tax laws ...

Q: Stu is working on a bid for a contract. Thus far, he has determined that he will need $218,000 for f...

A: Calculation of Operating Cash Flow:To calculate the operating cash flow, it is necessary to calculat...

Q: Ed Draycutt is the engineering manager of Airway Technologies, a firm that makes computer systems fo...

A: You have asked a case sudy with four sub parts. I will answer the first three sub parts. Please post...

Q: Assume that you were recently hired as assistant to Jerry Lehman, financial VP of Coleman Technologi...

A: Note:Since we are entitled to answer up to 3 sub-parts, we shall answer the first 3 as you have not ...

Q: Assume that you purchase a five-year, $1,000 par value bond, with a 6 percent coupon and a yield of ...

A: Calculating the current price of the bond. We have,Current price of bond = C [1 – (1 / (1+r)n ] / r ...

Q: Digital Organics (DO) has the opportunity to invest $1.06 million now (t = 0) and expects after-tax ...

A: Calculation of Total PV of Interest Tax Shield:Excel Spreadsheet:

Q: Please calculate the Sharpe measure for the S&P 500 over the last ten years if the standard devi...

A: Sharpe Ratio or Sharpe measure of a security = Return in excess of risk free rate / Standard deviati...

Q: 3. Bonds: The three parts of this problem are related. By studying prices of zero coupon STRIPS, you...

A: If rn andrSn+1 are the spot rates for the year n and n+1 respectively, then one year forward rate be...

Q: I have been working on the question below and I'm stuck on how to finish it up.  I have provided wha...

A: The below are the possible considerations:It is characterized as a connection between the prices of ...

Q: Laura is saving for the college education of hertwochildren. They are two years apart in age; one wi...

A: As a first step let’s plot the cash flows on a time diagram.Please see the white board. In the table...

Q: There are two assets and two states of the economy.   State of Probability Rate of Return Rate of Re...

A: Calculation of Expected Return of Portfolio:To calculate the expected return of portfolio, we need t...

Q: Shown below are the investment weights for the securities held in four different portfolios: three m...

A: a.Formula for calculation of active share (AS):

Q: Final Assignment Ed Draycutt is the engineering manager of Airway Technologies, a firm that makes co...

A: Evaluation of Ed’s analysis:Net present value is the one of the best techniques of capital budget as...

Q: And what are the expected returns for stocks A and B if the conditions are as follows? A0 0.03...

A: Calculation of Expected Return for Stock A: