QUESTION 16 From: Principles of Finance with Excel 3rd ed,, Benninga and Mofkadi

ID: 2821812 • Letter: Q

Question

QUESTION 16 From: Principles of Finance with Excel 3rd ed,, Benninga and Mofkadi, 0 2018, 2011, 2006 ABC Corp. would like to borrow $10 million to fund a new manufacturing plant. According to the projected business plan, ABC feels comfortable with an equal annual payment of $1,550,000. What is the term of the loan that ABC Corp. can take assuming the alternative cost of capital is 9% per year? (Hint: use NPER function) Annual Payment Loan Amount: Alternative Cost of Capital: Term of Loan 1,550,000 10,000,000 9.00% #NIA Part B: How would you check to make sure this is correct? Show your work.

Explanation / Answer

Using excel function:

=NPER(Rate, PMT, PV)

=NPER(9%,-1550000,10000000)

= 10.08

Approximately 10 years.

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Cross checking with BA-II plus financial calculator:

Using financial calculator BA II Plus - Input details:

FV = Future Value =

$0.00

PV = Present Value =

$10,000,000.00

I/Y = Rate =

9.0000000

PMT = Payment or coupon or regular payment / frequency =

-$1,550,000.00

CPT > N = Total number of periods =

10.08425

Convert N periods in total number of years = N =

10.08