I spent quite a sum of time trying to figure out where and how do they get the interest expense and debt service for this question… it seems that its plucked from the sky!!.. how did they get the interest expense of 2240000 per year!!.. can someone help… i felt cheated… its not fair that the figure came out from nowhere, theres no way we could or anyone couldve calculated the NPV and CFAT for this question…
They said that the purchase was made with 80% debt - Thus ($40,000,000 x 0.8) 32,000,000 of debt @ 7% interest-only / annum = $2,240,000. That was about the only part of that item set I actually got right, the rest was a bloody gong show.