Suppose you are levering up to a level of 60% leverage ratio, you pay a 5% interest rate and a repayment of 5%. 

i) What is the cash-on-cash return in the first year? 

ii) How is the cash-on-cash return different from the return on levered equity of the 60% leverage ratio? 

What is the maximum repayment you can afford? iii) Suppose you finance using a credit with a fixed monthly payment. Explain why the free cash-flow will decrease if sales and costs remain constant.

Answer rating: 100% (QA)

i To calculate the cashoncash return in the first year we need to determine the cash flow from the i... View the full answer