It seems the following question in the module "How to raise debt" has some error:-
Assume that a project's expected return is $180 million in 5 years for an initial investment of $100 million? How much debt should this project take to get a 10% ROI after debt payback? Assume 10% interest on the debt.
The correct solution is given as $50 million.
If the answer(debt) is $50 million, then the investment is also $50 million. Then the repayment along with the interest @10% comes as $75million. That results in a return of $105million. In that case the ROI id 110% instead of 10% as mentioned in the question. Kindly correct me if I am wrong.
Dec 17 2012 08:07 PM