Analyze and calculate the following scenarios in 525 words i

Analyze and calculate the following scenarios in 525 words, including which one would you choose and why, and which financing option is best for your busines:

* Investor #1 decided to loan you the $300,000, paying all of the interest (8% per year) and principal in one lump sum at the end of 5 years.

* Investor #2 offers you the $300,000, paying interest at the rate of 8% per year for 4 years and then a final payment of interest and principal at the end of the 5th year.

Solution

As per the above, both the option have the same total payout at the end of the 5 years i.e. $440,798.

Please see the below calculation for your reference.

Investor#1.

PV= $300,000

I/Y= 8%

N= 5

PMT= 0 (because all the payments made end of the 5 year)

FV= $440,798 (This is the amount that investor 1 will get at the end of the 5 years).

Investor#2

PV= 0 (because investor will recieve principal amount at the end of the 5 year)

I/Y = 8%

N=5

PMT= $24,000 (300,000*8%)

FV= $140,798.42

And, at the end of the 5th year total payment would be $140,798.42(Interested amount)+$300,000(Principal amount).

Note:-

PV - Present Value

I/Y - Yield per annum

PMT- Yearly payment

N- No. Of payments

FV- Future Value

Kindly let me know if you have anu questions.

Thanks,