Having successfully launched your career in health care management, family members have started contacting you for money. A brother-in-law has asked for ten thousand dollars to start a business. He starts the conversation by telling you his bank pays one-quarter percent. He has indicated he is willing to pay you more than the interest the bank will pay you. He is such a good guy he is willing to pay you two percent on the unpaid balance, on top of the two thousand dollars each year he will pay you back for the next 5 years.
Looks like I post many questions, but you can just draw them in excel.
- How much would you receive over the next 5 years if you took this deal?
- How much would you receive over the next 5 years if you found an investment that indeed returned 2%?
- What is the NPV of your brother-in-law’s proposal?
- What is the NPV of your investment that returns 2%?
- Is 2% a reasonable cost of capital for you? For your organization?
- What is the return of a $10,000 investment with a cost of capital of 10% over 5 years?