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?
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?
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