Help with business questions

Apr 13th, 2015
Business Finance
Price: $10 USD

Question description

Most financing options assume that the buyer will have a down payment toward the purchase of their business. Depending on the situation, that down payment may be in the range of 10-30% of the purchase price. The balance is then financed, perhaps by a bank, or sometimes the seller.

Use the following scenario and answer the questions that follow:

Assume that you are planning to purchase a business in 10 years. You anticipate the purchase price will be $500,000 and you will need a 20% down payment.

  • At a 6% rate of return, how much do you need to save each year to accumulate the down payment?
  • If you need 25%, and the rate of return is 5%, how much do you need to save each year?
  • For the percentage of the price you need to borrow, and considering the current phase of the business cycle, would you prefer a fixed or variable rate loan, assuming that you will have a 10 year payoff? Why?
  • Now assume that you will own the business for 15 years, and that it will grow at an annualized rate of 12%. Using the same $500,000 purchase price, what will be your selling price at the end of 10 years?

Tutor Answer

(Top Tutor) Peter M865
School: Carnegie Mellon University

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