Engineering Economy 7th Edition by Leland Blank ,Anthony Tarquin

Exercise 46

The Sullivan Family Partnership plans to purchase a refurbished condo in their hometown for invest­ment purposes. The negotiated $200,000 purchase price will be financed with 20% of savings (re­tained earnings) which consistently makes 6.5% per year after all relevant income taxes are paid. Eighty percent will be borrowed at a before-tax rate of 9% per year for 15 years with the principal repaid in equal annual installments. If the effective tax rate is 22% per year, based only on these data, answer the following.
a) What is the partnership's annual loan pay­ment for each of the 15 years
b) What is the net present worth difference be­tween the $200,000 now and the PW of the cost of the 80-20 D-E mix series of cash flows necessary to finance the purchase What does this PW value mean
c) What is the after-tax WACC for this purchase