To encourage investment in the country, the New Zealand government is offering loans at a favourable rate to foreign investors. The government is willing to provide a NZD 10 million loan at a rate of 5%, although the market interest rate is 14%. Assuming the loan is paid off in equal annual instalments over a 5 year-period and interest is paid on the remaining principal value, what is the (before-tax) value of this interest subsidy? 

(Tip: filling out the table below will help you to find the final answer.) 

Year	Principal	Interest Diff	Present value	Total NPV
1
2
3
4
5

Answer rating: 100% (QA)

To calculate the value of the interest subsidy we need to compare the interest paid on the government loan at a rate of 5 with the interest that would ... View the full answer