An investor is looking at building a factory to make gizmos. He estimates that it would cost $150,000 to build this factory from scratch. He reckons that his returns from the sale of gizmos would be $20,000 at the end of year 1, 35,000 in year 2, 40,000 in year 3, 60,000 in year 4 and 75,000 in year 5. The bank currently offers an interest rate of 8% on loans. The investor does his calculations and goes to present his proposal to the bank manager. Would the bank manager approve the loan? Why? Calculate the investor’s exact MEC? Make sure to show every step in the calculations to get full marks. Round off to whole numbers.

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An investor is looking at building a factory to make gizmos. He estimates that it would cost $150,000 to build this factory from scratch. He reckons that his returns from the sale of gizmos would be $20,000 at the end of year 1, 35,000 in year 2, 40,000 in year 3, 60,000 in year 4 and 75,000 in year 5. The bank currently offers an interest rate of 8% on loans. The investor does his calculations and goes to present his proposal to the bank manager. Would the bank manager approve the loan? Why? Calculate the investor’s exact MEC? Make sure to show every step in the calculations to get full marks. Round off to whole numbers.

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