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stiv31 [10]
2 years ago
14

How much would an investor be willing to pay for an investment which promises to pay $200 per year in perpetuity if the investor

requires a 14 percent return on the investment? Round to the nearest cent. Do not include any unit (If your answer is $111.11, then type 111.11 without $ sign.)
Business
1 answer:
ch4aika [34]2 years ago
7 0

Answer:

1428.57

Explanation:

A perpetuity assumes a constant cash flow streams over an infinite period. The Present Value or the value of a perpetuity can be calculated if the periodic/annual payment that a perpetuity pays and the interest rate or required rate of return is known.

In this question the present value that an investor, requiring 14% return, will attach to a perpetuity paying 200 annually can be calculated as follows,

PV or P =  Cash flow/ Interest or Required rate of Return

PV/P = 200/0.14  => 1428.57 rounded off to nearest cent

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2 years ago
Read 2 more answers
The Tolar Corporation has 500 obsolete desk calculators that are carried in inventory at a total cost of $720,000. If these calc
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Answer:

It is more profitable to upgrade the calculators.

Explanation:

Giving the following information:

The Tolar Corporation has 500 obsolete desk calculators that are carried in inventory at a total cost of $720,000. If these calculators are upgraded at a total cost of $140,000, they can be sold for a total of $200,000. As an alternative, the calculators can be sold in their present condition for $50,000.

We need to determine whether it is more convenient to upgrade the calculators or sell them as they are.

Upgrade:

Effect on income= 200,000 - 720,000 - 140,000= -$660,000

Not upgrade:

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5 0
2 years ago
A toy manufacturer uses approximately 32,000 silicon chips annually. The chips are used at a steady rate during the 240 days a y
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Answer:

a) 1,600

b) 20

C) every 18.25 days

d) 4,800 dollars

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Q_{opt} = \sqrt{\frac{2DS}{H}}

<u>Where: </u>

D = annual demand = 32,000 units

S= setup cost = ordering cost = $120

H= Holding Cost = $3.00

Q_{opt} = \sqrt{\frac{2(32,000)(120)}{3}}

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32,000 / 1,600 = 20 order per year

days between orders:

365 days per year / 20 order per year = 18.25 days

inventory cost:

average inventory: 1,600 / 2 = 800 units of inventory

800 x $3 holding cost + 20 orders at $120 each

2,400 + 2,400 = 4,800

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