Question

Solve using excel

You give a loan to your friend to buy equipment for his business. The friend puts $4000 of their own money as a down payment, you lend them $12,000. The equipment is $16,000 total. You will charge your friend 4.0% Interest every year and will collect monthly payments for 60 months. Inflation is 1.7% per year, constant for 5 years.

a.) What is the NPV of the loan assuming it is paid each month on time?

b.) What is the opportunity cost of the loan you give to your friend if you could invest the same amount and receive a 4.5% return each month?

c.). Given the opportunity cost would you lend your friend the money?

Answer #1

Hi there, Please find the solution of the above mentioned problem. Thanks.

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