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never [62]
3 years ago
5

Two mutually exclusive investment opportunities require an initial investment of $7 million. Investment A pays $1.5 million per

year in perpetuity, while investment B pays $1.2 million in the first year, with cash flows increasing by 3% per year after that. At what cost of capital would an investor regard both opportunities as being equivalent
Business
1 answer:
Nataly_w [17]3 years ago
4 0

Answer:The cost of capital that will make both investments equal is 17.045%

Explanation:

Investment A

$1.5 million will be received in perpetuity we can there use perpetuity formula to Value investment A.

Value of Investment A = 1500 000/r

Investment B

$1.2 Million will be received in Investment B with a growth rate of 3% will then use Gordon's growth rate model to value investment B.

Value of investment B = (1200 000 x (1+0.03))/(r - 0.03)

Value of investment B = 1236000/(r - 0.03)

1500 000/r = 1236000/(r - 0.03)

1236000(r) = 1500000(r - 0.03)

(r - 0.03) = 1236000( r)/1500000

r - 0.03 = 0.824r

r - 0.824r = 0.03 = 0.176r = 0.03

r = 0.03/0.176 = 0.170454545

R = 17.045%

The cost of capital that will make both investments to be equal is 17.045%

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You deposit $1,100 at the end of each year into an account paying 9.1 percent interest.
vlabodo [156]

Answer:

a.

The money that we will have in account is $51156.41

b.

The money that we will have in account is $318808.31

Explanation:

a.

The deposits made in the account represent an annuity pattern as the deposits made are of a constant amount, are made after equal interval of time and are for a defined time period. Thus, to calculate the value of money that we will have after 19 years, we will use the formula for the future value of annuity.

The formula for the future value of annuity is attached.

FV = 1100 * [ (1+0.091)^19 - 1 / 0.091 ]

FV = $51156.41178

b.

The same formula for the future value of annuity will be used and we will change n from 19 to 38.

FV = 1100 * [ (1+0.091)^38 - 1 / 0.091 ]

FV = $318808.3149

5 0
3 years ago
Is an atom with a nucleus of 31 protons and 31 neutrons a stable isotope?
Liula [17]
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6 0
3 years ago
Compared to a country with an MPS of 0.05, a country with an MPS of 0.2 would have to change government expenditures by ________
const2013 [10]

Answer: Four times.

Explanation:

Based on the information given, the government expenditure multiplier in this case goes thus:

K = ∆Y/∆G = 1/1-MPC = 1/MPS

For the first country with a MPS of 0.05, K = 1/MPS = 1/0.05 = 20

For the first country with a MPS of 0.2, K = 1/MPS = 1/0.2 = 5

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8 0
3 years ago
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Artemon [7]
I had to look for the options and here is my answer:
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5 0
3 years ago
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Crazy boy [7]

Answer:

a. The division of activities into unit level, batch level, product sustaining level and facility level categories is commonly known as cost.

Explanation:

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3 0
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