Your company will generate $100,000 in cash flow each year for the next 18 years from a new information database. The computer system needed to set up the database costs $600,000. If you can borrow the money to buy the computer system @ 16.5 percent annual interest
Answers
Answered by
0
Explanation:
If we look at the given data, we need to figure out if the investment done by the company will be profitable or not. For that let us calculate the total profit expected in 18 years;
Total profit = Profit of one year x number of years
Total profit = 100,000 x 18
Total profit = 1,800,000
Now the amount of money that the company will be paying on the loan of 600,000
Total amount to be paid as loan = Principal amount + (Principal amount x interest rate x number of years)
Total loan amount = 600,000 + (600,000 x 0.165 x 18) = 1,782,000 + 600,00
Total loan amount = 2,382,000
Since total loan amount exceeds the profit generated so it is not a feasible deal
Similar questions