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Oxana [17]
3 years ago
5

You are considering two home security companies for your new house. The first company offers free installation and equipment, bu

t will charge you $401.00 per year forever. The second company charges $783.00 for installation, but will charge you $204.00 per year forever. Assume that payments are at the END of the year. Your personal interest rate is 5.00% per year, and you want to evaluate each proposal. What is the present value (PV) of the free installation?
Business
1 answer:
Vesnalui [34]3 years ago
5 0

Answer:

The second option is the cheapest.

Explanation:

Giving the following information:

The first company offers free installation and equipment, but will charge you $401.00 per year forever. The second company charges $783.00 for installation, but will charge you $204.00 per year forever. Assume that payments are at the END of the year. Your personal interest rate is 5.00% per year

To calculate the present value, we need to use the formula for a perpetual annuity:

PV= Cf/i

Cf= cash flow

i= interest rate

Option 1:

PV= 401/0.05= $8,020

Option 2:

PV= 204/0.05 + 783/1.05= $4,825.71

The second option is the cheapest.

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The question is incomplete. The complete question is as follows,

The Waverly Company has budgeted sales for the year as follows:

Quarter sales in unit

1=12,000

2=14,000

3=18,000

4=16,000

The ending inventory of finished goods for each quarter should equal 25% of the next quarter's budgeted sales in units. The finished goods inventory at the start of the year is 3,000 units. Scheduled production for the second quarter (in units) is:

a.17,500 units.

b.16,500 units.

c.15,000 units.

d.13,000 units.

Answer:

Production = 15000 Units

Option C is the correct answer

Explanation:

To calculate the scheduled production for the second quarter, we first need to find the opening and ending inventory for the third quarter. The ending inventory for each quarter will become the opening inventory for next quarter. It is mentioned in the question that the ending inventory in each quarter is equal to 25% of the next quarter's budgeted sales. Then,

Ending Inventory First Quarter = 0.25 * 14000  =  3500 units

Ending Inventory Second Quarter = 0.25 * 18000  =  4500 units

The production of units in second quarter can be calculated as follows,

Budgeted Sales  =  Opening Inventory + Production - Closing Inventory

14000 = 3500 + Production - 4500

14000 + 4500 - 3500 = Production

Production = 15000 Units

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