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Elena L [17]
3 years ago
15

Suppose a firm is considering the purchase of a machine which when used will increase its total revenues by $10,000 for the year

. The machine costs $8,000 and has a useful life of one year. The interest rate is 20 percent. This investment should:
Business
1 answer:
xz_007 [3.2K]3 years ago
6 0

Answer: Be undertaken because the rate of return is 5 percent greater than the interest rate

Explanation:

Given the following ;

Revenue increase = $10,000

Cost of machine = $8,000

Calculating the Rate of Return on the investment ;

FV = PV × (1 + r)^n

FV = Revenue increase = $10,000

PV = Cost of machine = $8000

n = period = 1 year

r = rate of return

$10000 = $8000 × (1 + r) ^1

1 + r = $10,000 ÷ $8,000

1 + r = 1.25

r = 1.25 - 1

r = 0.25 = 25 %

Interest rate = 20%

Rate of Return on investment = 25%

Rate of Return is 5% greater than interest rate

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A periodic review system is __________. a. a term used to indicate the amount of demand b. to be met under conditions of demand
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Read 2 more answers
Cono-Cool air conditioners cost $350 to purchase, result in electricity bills of $160 per year, and last for 5 years. Luxury Air
tatuchka [14]

Answer:

a) The equivalent annual costs of the Econo-Cool models= $436.50

b) The equivalent annual costs of the of Luxury Air models = $515

c)Econo-cool model

d 1 .(i) $464.15

      (ii) $597.95

d 2 . Econo-cool model

Explanation:

a) Econo-cool model

Purchase price= $350

Discount =21%

Electricity bill= $160 per year

Annual cost per year will be

$350 * 79/100 =$276.50 ------after applying the 21% discount

$276.50+$160 =$436.50 -------after adding electricity cost per year

The equivalent annual costs of the Econo-Cool models= $436.50

b) Luxury Air Models

  Purchase price at the shop=$550

  Discount =21%

  Buying price =79/100*$500 = $395

 Electricity cost = $120 per year

 Annual cost = $395+$120 =$515

The equivalent annual costs of the of Luxury Air models = $515

c) The Econo-cool model

d (1) Econo-cool model

$350 *110/100 =$ 385 -----due to inflation

Apply the discount = 385*79/100 =$304.15

Add the cost of electricity = $304.15+$160 =$464.15

For Luxury Air model

$550*110/100 =$605

Apply the discount = $605*79/100 =$477.95

Add electricity bill = $477.95 +$120 =$597.95

d(2) Econo-cool model

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3 years ago
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