Question

I need to borrow​ $5,000 for a car because it enables me to get a job as a traveling anvil seller. Larry the Loan Shark will loan me the​ $5,000 at an interest rate of​ 90%. Principle and interest are due in exactly 12 months. With the​ car, I will be able to earn​ $10,000 in extra income over the next 12 months. What is the net cash flow by taking out the​ loan? The net cash flow is ​$ nothing.

Answer 1

The net cash flow by taking out the​ loan is $500.

Explanation:

Principle = $5000

rate = 90% or 0.90

time = 1 year

Net cash flow = Extra income – Principle after 1 year

=
`10000- [5000(1+0.90)]`

=
`10000-9500`

= $500

Therefore, the net cash flow by taking out the​ loan is $500.