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Scenario: Business obtains a $5,000,000 loan with a 5% interest rate that must be paid back in equal installments over a 5 year period. The business...

Scenario: Business obtains a $5,000,000 loan with a 5% interest rate that must be paid back in equal installments over a 5 year period. The business yearly operational costs total $10,000,000.

The first year after the investment, sales equal 95,000 boxes of gadgets and revenue equals $9,500,000.
Assuming that sales volume remains unchanged over the remaining 4 year period, prepare a report on the following:

1. The sale price of each box of gadgets during the first year after the investment.
2. The rate of annual inflation as applied to each box of gadgets over the remaining four-year period that will assure that the business break even and will be able to pay off the loan on time. Also explain how you determined the rate.

Then assume that each box of gadgets is priced at $142. All of your other sales and cost variables are the same as above. However, the economy has entered a period of deflation. Prepare a report on the following:
• The rate of annual deflation as applied to each box of gadgets over the remaining 4-year period below which your venture will become unprofitable. Explain how you determined the rate.
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554516_ECO_revised solution.docx

554516_ECO
Scenario: Business obtains a $5,000,000 loan with a 5% interest rate that must be paid back in
equal installments over a 5 year period. The business yearly operational costs total...

Sign up to view the full answer

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