Mr. Fox gets a loan from the bank. Total amount : $ 20,000. The bank is granting loans for an annual interest of 10%. The $20,000 will serve to finance a project in the mountains. An initial payment is to be blocked an not used ($ 1,000) and the rest will be used for working capital. Tax rate is 2%. What would be the cost of debt for Mr. Fox? If the bank didn't receive back the entire money, what kind of risk is facing Mr. Fox? What would be the value of the blocked amount in 3 Years, if inflation rate is 5%?

Mr. Fox gets a loan from the bank. Total amount : $ 20,000. The bank is granting loans for an annual interest of 10%. The $20,000 will serve to finance a project in the mountains. An initial payment is to be blocked an not used ($ 1,000) and the rest will be used for working capital. Tax rate is 2%. What would be the cost of debt for Mr. Fox? If the bank didn't receive back the entire money, what kind of risk is facing Mr. Fox? What would be the value of the blocked amount in 3 Years, if inflation rate is 5%?

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 8E

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