An entrepreneur is considering a business project that will be financed by an unrestricted loan (effectively an overdraft). The only outlay required is an initial cost of £80,000. The income is received annually in arrears. At the end of the first year the income is expected to be £8,800 and inflation is expected to increase this each year thereafter by 10% pa compound. The entrepreneur may borrow and invest money at 12% pa interest. If the project is expected to last for twelve years, calculate:

(i) the largest overdraft held during the term of the project, and

(ii) the net present value of the project at 12% pa effective.

Answer rating: 100% (QA)

i Largest overdraft held Initial cost 80000 Income Y... View the full answer