Jerry’s Tree Services is trying to raise debt funds from a prospective venture investor, SureWay LLC. SureWay indicated to Jerry Lau that the annual interest rate on risky venture loans is currently 15 percent. Jerry is seeking a three-year loan with annual payments. He is willing to pay back $100,000 at the end of three years. However, because of cash flow problems, he can afford to pay interest at only a 12 percent annual rate.
A. Calculate the dollar amount that SureWay venture investors would lend to Jerry’s Tree Services.
B. What would be the dollar amount of the loan if the loan is made for only two years?