The Sullivan Family Partnership plans to purchase a refurbished condo in their hometown for investment purposes. The

Question:

The Sullivan Family Partnership plans to purchase a refurbished condo in their hometown for investment purposes. The negotiated $200,000 purchase price will be financed with 20% of savings (retained earnings) which consistently makes 6.5% per year after all relevant income taxes are paid. Eighty percent will be borrowed at a before-tax rate of 9% per year for 15 years with the principal repaid in equal annual installments. If the effective tax rate is 22% per year, based only on these data, answer the following.

(a) What is the partnership's annual loan payment for each of the 15 years?

(b) What is the net present worth difference between the $200,000 now and the PW of the cost of the 80-20 D-E mix series of cash flows necessary to finance the purchase? What does this PW value mean?

Partnership
A legal form of business operation between two or more individuals who share management and profits. A Written agreement between two or more individuals who join as partners to form and carry on a for-profit business. Among other things, it states...