A firm learns a firm has an investment opportunity that will earn future revenue 4 years from
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Question:
A firm learns a firm has an investment opportunity that will earn future revenue 4 years from now by $160,000. The marginal cost of the physical capital today is $125,000. The firm makes this investment at an interest rate of 5%. Using this information answer the questions below:
- Should this frim make this investment?
- What is the discounted percentage for this investment?
- Other things being equal, could this investment be made a higher interest rate? Lower? Why
- Other things being equal, could this investment be made for longer term? Shorter term? Why?
Question 5: Investment over time?
A rental company is looking to purchase equipment for a marginal resource cost of $50000. The company will earn a revenue of $4000 per year for 5 years. At year 5, the company will also earn a salvage value of the equipment of $10000. The interest on the borrowing is 7%
a. Fill in the table below
Year | Future Value | Present Value | Discount Factor (percentage) |
1 | |||
2 | |||
3 | |||
4 | |||
5 |
b. Should this firm invest. show why or why not?
Related Book For
Cost Accounting Foundations and Evolutions
ISBN: 978-1111626822
8th Edition
Authors: Michael R. Kinney, Cecily A. Raiborn
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