Question

. The owners of a successful restaurant want a loan for $50,000 to renovate the kitchen and expand the dining room. They expect that the extra tables will add between $2,000 and $5,000 to the restaurant’s monthly revenue. The bank is willing to let the business have an intermediate-term loan of $50,000 for five years at an interest rate of 6.5 percent. Calculate the monthly payment and explain whether taking this loan is a smart business decision.

Answer 1

The average monthly payment would be roughly $1,100 dollars.

As the increase in revenue is above that I call the loan a smart business decision.

Reason: (50 000 * (1.06500^5)) / (5 * 12) = 1 141.73889.