Just show me how to calculate it and I'll do the rest. I just don't understand how to calculate this problem.
Thank you,
An online store that has been successfully growing on its initial angel investment and revenues 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.
Monthly payment is 75,870.2, use online calculator.
To calculate the monthly payment for a loan with a fixed interest rate and term, you can use a formula called the loan payment formula. This formula is typically used for loans with equal monthly payments.
The formula is:
P = (r * A) / (1 - (1 + r)^(-n))
Where:
P = Monthly payment
r = Monthly interest rate (annual interest rate divided by 12)
A = Loan amount
n = Number of payments
First, let's calculate the monthly interest rate. In this case, the annual interest rate is 10 percent. To find the monthly interest rate, divide 10 by 100 and then by 12:
r = (10 /100) / 12 = 0.0083333 (rounded to 7 decimal places)
Next, determine the number of payments. In this case, the loan term is eight years, which means there will be 8 x 12 = 96 monthly payments.
n = 96
Now, you need to plug in these values into the loan payment formula:
P = (0.0083333 * 5,000,000) / (1 - (1 + 0.0083333)^(-96))
Calculating this using a calculator or spreadsheet will give you the monthly payment amount.
After calculating the monthly payment, it's important to consider whether this investment is a smart business decision. The business must be able to generate enough additional revenue to cover the monthly loan payment, as well as generate a profit. The investment should provide a return on investment (ROI) that makes the monthly payment worthwhile. Additionally, the business must have a viable plan to use the $5 million effectively, such as expanding operations, improving infrastructure, or launching new products or services. It's important to conduct thorough market research and financial analysis to ensure the investment will have a positive impact on the business's growth and profitability.