Based on the amount it would cost to build the machine and the interest rate as well as the payoff, the following are true:
a. The machine will take a year to build which means the payoff will only start coming in next year.
First find the present value of the perpetuity:
= 70 / 5%
= $1,400
You then need to find the present value of the above in the current period:
= 1,400 / ( 1 + 5%)
= $1,333
NPV is:
= 1,333 - 1,000 cost
= $333
B. If the amount produced increases by 1%, you should use the Gordon Growth Model:
<em>= Next payoff / ( Interest - Growth)</em>
=70/ ( 5% - 1%)
= $1,750
Take this to current year:
= 1,750 / 1.05
= $1,667
NPV will be:
= 1,667 - 1,000
= $667
Find out more about NPV at brainly.com/question/7254007.
Answer:
$24,530, $23,530
Explanation:
Incomplete word <em>"and if the spot price in September proves to be $2,300."</em>
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Note that Call options will be exercised only if the price on expiry is greater than strike price
Strike price = $2400
Premium paid = $53 for each contract, so the total premium paid = $530 for 10 contracts
<u>CASE 1</u>
Price = $2600
As price on expiry=2600 > Strike price=2400
Call option will be exercised.
Company will pay = $2400 * 10+530 = $24,530
<u>CASE 2</u>
Price = $2300
As price on expiry=2300 < Strike price=2400
Call option will not be exercised and will purchase from open market
Company will pay = $2300 * 10+530 = $23,530
Answer: Option (B) is correct.
Explanation:
Given that,
Coolant (used in the office air-conditioning system) cost = $15,000
Property taxes on factory building = $45,000
Depreciation on trucks = $10,000
Salary paid = $2,000
Period cost = Coolant cost + Depreciation on trucks
= $15,000 + $10,000
= $25,000
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Answer:
$8,395
Explanation:
You will have
$4,150 x (1 + 0.073)^10 = $8,395 at the end of 15 years from today.
