Question: A company is considering an investment which will require a payment of dollar 100,000 at the beginning of the first year. The company expects the investment to achieve revenues of dollar 25,000 per year up to and including the seventh year. Revenues start at the end of the first year and end at the end of the seventh year. MARR = 5%.
a. Draw the cash flow diagram (CFD) for this investment showing cost and revenue components of the CFD
b. If x% of the initial costs needed for this investment (dollar 100,000 is to be partially offset by a money borrowed from a line of credit, where x ranges from 0% to 75%. Money is to be borrowed whenever needed from an account with a maximum credit of dollar 75,000. The loan will be paid back as a lump sum (one payment) at the end of the project (whenever the last revenue is received). Draw the relationship between x and the NPW of this project given that the bank's interest rate is 3.89%.
c. If the costs are to be completely offset by a loan of dollar 100,000 to be financed over seven years with repayments being made to the bank at the end of each year for seven years. Find the maximum interest rate for this loan so that the project is feasible.