Loan A has the same original principal, interest rate, and payment amount as Loan B. However, Loan A is structured as an annuity
1 answer:
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Answer:
The project should be rejected as the payback period of 3.97 years exceeds the required 3 years. So, the correct option is E
Explanation:
The table showing the discounted cash flows of each year:
Computing discounted payback as:
Discounted Payback = Number of years + (Initial Cost - Discounted Cash flow of year 1 + Discounted Cash flow of year 2 + Discounted Cash flow of year 3 / Discounted Cash flow of year 4)
= 3 + ($120,000 - $0 - $28,925.62 - $41,322.31 / $51,226.01)
= 3 + ($49,752.07 / $51,226.01)
= 3 + 0.97
= 3.97
Working Note:
Discounted Cash Flow is computed as:
Discounted cash flow = Cash Flow / (1 + r) ^ n
where
r is rate of return that is 10%
n is number of year
So,
For 1st year:
= $0 / (1 + 0.1) ^1
= $0
For 2nd year:
= $35,000 / (1 + 0.1) ^ 2
= $35,000 / 1.21
= $28,925.61
For 3rd year:
= $55,000 / (1 + 0.1) ^ 3
= $55,000 / 1.331
= $41,322.31
For 4th year:
= $75,000 / (1 + 0.1) ^ 4
= $75,000 / 1.4641
= $51,226.01
Answer:
Option A, buy less of X and more of Y is correct.
Explanation:
The amount that Mr. Rational is going to spend = $27
Quantity of good X = 5 units
Price of good X (Px) = $3 per unit
Marginal utility of 5th unit of X (MUx) = 30
Quantity of good Y = 6 units
Price of good Y (Py) = $2 per unit
Marginal utility of 6th unit of Y (MUy) = 18
So good x will be substituted for y in order to reach the consumer equilibrium.
Thus, Option a. buy less of X and more of Y is correct.