You are negotiating to make a 6-year loan of $40,000 to Breck Inc. To repay you, Breck will pay $5,000 at the end of Year 1, $10,000 at the end of Year 2, and $15,000 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from year 4 through Year 6. Breck is essentially riskless, so you are confident the payments will be made. You regard 8% as an appropriate rate of return on a low risk but illiquid 6-year loan. What cash flow must the investment provide at the end of each of the final 3years, that is, what is X?

Question

You are negotiating to make a 6-year loan of $40,000 to Breck Inc. To repay you, Breck will pay $5,000 at the end of Year 1, $10,000 at the end of Year 2, and $15,000 at the end of Year 3, plus a fixed but currently unspecified cash flow, X, at the end of each year from year 4 through Year 6. Breck is essentially riskless, so you are confident the payments will be made. You regard 8% as an appropriate rate of return on a low risk but illiquid 6-year loan. What cash flow must the investment provide at the end of each of the final 3years, that is, what is X?

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.
Tagged in
BusinessFinance

Time Value

Related Finance Q&A

Find answers to questions asked by student like you
Show more Q&A

Q: Use the following information: . Debt: $79,000,000 book value outstanding. The debt is trading at 94...

A: Calculation of Total Market Value:

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

A: Contribution margin (price minus variable costs) for each unit, CM =  $ 40.Fixed cost, FC = $2,450,0...

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: R.S. Green has 250,000 shares of common stock outstanding at a market price of $28 a share. Next yea...

A: Cost of Equity:Cost of equity is the amount or rate which a company bears for the issue of share. In...

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: Someone in the 15 percent tax bracket can earn 8 percent annually on his investments in a tax-exempt...

A: Calculation of After-Tax Value of Investment:The account is a tax exempt account. Hence the 15% tax ...

Q: Consider a $5,000 deposit earning 10 percent interest per year for ten years. What is the future val...

A: Future Value (FV)Future value is the specific value or amount of an investment at a specific date in...

Q: What are some of the possible consequences should a home owner allow the policy to lapse?

A: If the policyholder of the property insurance fails to make multiple payments, then the homeowners i...

Q: A bank's loan rate for a machine is 9%. Determine the effective rate on the basis of the compounding...

A: The effective interest rate or the effective annual rate (EAR) is the actual rate paid or earned on ...