We need to find the accumulated profit at $t=5$ ( in years ) for the following project given that it is financed by a loan subject to interest $6.25\%$.
Project : Initial outlay of $\$ 100,000$ , proceeds at the end of each of the next 3 years $\$38,850$.
Proceeding as follows : At $t=1$ : Interest = $6250$ , Income = $38,850$.
So after paying the interest and from the remaining income paying the loan , we have amount left $67,400$.
Proceeding at the similar manner at $t=3$ , the amount left over is $4039.8$.
Now for acc. profit , in the solution , this amount $4039.8$ is accumulated to $t=5$ using the interest rate $6.25\%$ , but that was the interest on the loan , interest provided on the investments isn't given. So how can we apply $6.25\%$ ?
No further info is provided , whether it's a flexible borrowing etc etc. Can anyone help ?