Find projected net present value

) You want to buy a house for $350,000. The bank will loan you 85% of the purchase price. The mortgage terms are “30 years, monthly payments, and 9% APR.”

a. How much will your monthly mortgage payments be?

b. In order to purchase the house you have to come up with a down payment (i.e. portion of the house price that the bank will not lend you). Despite saving for a few years, you are forced to borrow half of the down payment from your parents. You and your parents agree to the following terms for the loan 3% APR, paid back in 10 years with monthly payments.

What are the monthly payments you will make to your parents?

c. Over the next 30 years, assuming that you stay in the house, how much will you have paid, in total, for the house?

) When projects have large costs associated with wrapping them up (i.e. a mine or nuclear power plant, etc…) it is possible to calculate multiple IRRs (i.e. two discount rates that result in an NPV of $0.00). Your boss just emailed you the NPV profile for a proposed copper mine project, but he is confused about what it tells us. (3) What should you tell your boss about how to interpret the above curve? 20) Travis & Sons has a capital structure which is based on 40 percent debt, 5 percent preferred stock, and 55 percent common stock. The pre-tax cost of debt is 7.5 percent, the cost of preferred is 9 percent, and the cost of common stock is 13 percent. The company’s tax rate is 39 percent. The company is considering a project that is equally as risky as the overall firm. This project has initial costs of $325,000 and annual cash inflows of $87,000, $279,000, and $116,000 over the next three years, respectively.

What is the projected net present value of this project?

Solution: