​A If a Firm Borrows $10,000,000 from a Bank at 12

question 34

Essay

​a. If a firm borrows $10,000,000 from a bank at 12% and pays an origination fee of 10%. What is the rate of interest if the firm borrows the full amount for the entire year?
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b. If a firm borrows $10,000,000 from a bank at 12%, discounted in advance, what is the rate of interest if the firm borrows the full amount for the entire year?

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Definitions:

Required Return

The minimum expected return by investors for investing in a particular security or project, taking into account the risk associated with it.

Net Present Value

The difference between the present value of cash inflows and the present value of cash outflows over a period of time, used to analyze the profitability of a projected investment or project.

Mutually Exclusive Projects

Projects that, when considered by a business, only one can be chosen as they compete for the same resources.

Straight-line Depreciation

A process for dividing the price of a tangible property into uniform yearly portions throughout its operational life.