U.S. Fax has been granted a loan from a commercial finance company for $1 million at a stated interest rate of 10 percent. The loan requires that interest payments be made at the end of each of the next five years.
At the end of five years, the entire loan balance must be repaid. The finance company requires U.S. Fax to pay a $25,000 loan-processing fee at the time the loan is approved. What is the effective cost of this loan?