When both supply and demand decrease, the equilibrium price: a. increases and equilibrium quantity increases. b. is indeterminat
e and equilibrium quantity increases. c. decreases and equilibrium quantity is indeterminate. d. increases and equilibrium quantity is indeterminate. e. is indeterminate and equilibrium quantity decreases.
1 answer:
Answer:
The answer is e.
Explanation:
First you draw a supply and demand graph. When you move to the left on the graph, you decrease and when you move to the right, you increase. Being that both supply and demand will decrease, you will end up in the left triangle of the original graph. In that area, you can't really decide the price because it's not clear if it increases or decreases. It is clear that the quantity decreases. So (e) is the answer.
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Answer:
Hence, the the maximum amount the company could invest in the project is $1081432.86 and yes, the project should be accepted as the value is greater than initial investment.
Therefore, the correct option is b. $1,081,434
Explanation:
Here, maximum amount means the sum of present value of all cash inflows
So,
Present value = all Year cash inflows × Discounted factor of each year
where,
Year 1, year 2, year 3, year 4, and year 5 have same cash flows i.e. $300,000
But the discounted factor is different in each year
The calculation of discounted factor = 1 ÷ (1+0.12) ^ 1
where,
0.12 = rate
^1 = for year 1, ^2 = for year 2 and so on.
The discounted rate for year 1, , year 2, year 3, year 4, and year 5 is 0.8929
, 0.7972
, 0.7118
, 0.6355
, 0.5674 respectively.
Now, multiply the cash flow amount with discounted rate for each year to get presented value of all years.
Year 1 = $300,000 × 0.8929 = $267,857.14
Year 2 = $300,000 × 0.7972 = $239,158.16
Year 3 = $300,000 × 0.7118 = $213,534.07
Year 4 = $300,000 × 0.6355 = $190,655.42
Year 5 = $300,000 × 0.5674 = $170,228.06
Then, sum all the presented values of all year to get maximum amount
= $267,857.14 + $239,158.16 + $213,534.07 + $190,655.42 + $170,228.06
= $1,081,432.86
So, we attached the sheet for better understanding.
Hence, the the maximum amount the company could invest in the project is $1081432.86 and yes, the project should be accepted as the value is greater than initial investment.
Therefore, the correct option is b. $1,081,434
