You are offered an investment opportunity that costs you $28,000. has a net pres

Question

You are offered an investment opportunity that costs you $28,000. has a net present value (NPV) of $2278. lasts for three years, has interest rale of 10%. and produces the following cash flows What is the missing cash flow in year 2? Today, you'd like to buy a new home for $300,000 by applying to a 30-year fixed rate mortgage. Your mortgage bank will lend you the money at 5% APR compounded monthly. You can only af ford payments of $1,600 per month. Therefore, you decide the only way you make this work is to offer to make a lump sum (also known as a balloon) payment along with the LAST loan payment How much would this have to be?

Explanation / Answer

Let x be the cash flows in the 2nd year. Since NPV is available equate NPV with cash inflows minus outflow

10000*.909+X*.826+15000*.751-28000=2278

Then x =$ 12000

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