Company needs a 4 year-loan of 1.000.000 euros and it is considering two alternatives: A loan in euros with a fixed interest rate of 5%, amortized through even annual periodic payments. The loan has an initial fee of 1% of its nominal amount. 

 A loan in dollars with a fixed interest rate of 4%, amortized through even annual amortization payments. The loan has an initial fee of 1% of its nominal amount. At the moment, the loan was granted the exchange rate was $1,2/€.

a. Calculate the effective cost (before taxes) of the loan, supposing that the accumulated annual depreciation of the euro is 0,05€/$.

b. Calculate the effective cost (before taxes) of the loan, supposing that the accumulated annual depreciation of the dollar is $0,05/€. 

c. If the company pays a tax rate of 30%, what would be the effective cost after taxes in each case.

Answer rating: 100% (QA)

To calculate the effective cost of each loan option we first need to determine the annual payment for each loan Lets start with option A the loan in euros a Loan in Euros The loan amount is 1000000 an... View the full answer