An online store that has been successfully growing on its initial angel investment and revenue wants to invest $5 million to expand the business. The bank is willing to lend the business this money at a 10 percent interest rate over an eight-year term. Calculate the monthly payment and explain what the business must be able to do with this money in order for this to be a smart business decision.

Question

Mathematics

Barbara Leblanc

10 February, 16:54

An online store that has been successfully growing on its initial angel investment and revenue wants to invest $5 million to expand the business. The bank is willing to lend the business this money at a 10 percent interest rate over an eight-year term. Calculate the monthly payment and explain what the business must be able to do with this money in order for this to be a smart business decision.

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Amirah Gamble · Answer 1

At simple interest: 10% = 5,000, 000 x 10/100 = 5,000,000 x (1/10) = $500,000 spread over 8 years = 8 x $62,500 monthly interest payment = $62,500/12=$5208.33 Smart decision: has to at least break-even, if not generate more than the total interest repayment.