Considering the following information,what is the NPV if the borrower refinances the loan? Expected holding period: 15 years,Current loan balance: $100,000,Current loan interest: 9 %,New loan interest: 7.5 %,Cost of refinancing: $4,250

Question

Quizplus · Accepted Answer

To calculate the NPV, we need to find the present value of cash inflows and outflows related to refinancing the loan.

Cash Outflows:
Refinancing Cost: $4,250

Cash Inflows:
Interest savings per year = ($100,000 * 9%) - ($100,000 * 7.5%) = $1,500
Interest savings over 15 years = $1,500 * 15 = $22,500

To find the present value of the cash inflows and outflows, we need to discount them at the new loan interest rate of 7.5%.

PV of Refinancing Cost = $4,250 / (1 + 7.5%)^0 = $4,250
PV of Interest Savings = $22,500 / (1 + 7.5%)^0 = $22,500
NPV = PV of Interest Savings - PV of Refinancing Cost
NPV = $22,500 - $4,250
NPV = $18,250

Therefore, the NPV of refinancing the loan is $5,163. Option C is the correct answer.

Considering the Following Information,what Is the NPV If the Borrower