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9966 [12]
2 years ago
12

Suppose an initial investment of $100 will return $50/year for three years (assume the $50 is received each year at the end of t

he year). Is this a profitable investment if the discount rate is 20%
Business
1 answer:
sukhopar [10]2 years ago
6 0

Answer:

Since the NPV is positive, it is a profitable investment.

Explanation:

Solution

Given that:

The initial investment of $100 would be considered as an outflow.

The inflow for the next three years will be =$50

The discount rate r = 0.2

To find or determine the probability of the investment, discount the future of outflows and inflows. the following formula is applied or used  to find the present value of inflows

PV = FV/(1 + r )^k

Where

PV = present value

FV =future value

r = discount rate

k = time period

Now,

For k =1

PV = 50/(1 + 0.2)

=$41.67

So,

PV  for k = 2 is $34.72 and for k =3 is $28.94

Thus,

The net present value can be calculated by the difference between the outflows and total inflows

NPV =$100- ($41.67 + $34.72 + $28.94)

=$5.33

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Answer:

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Selected Comparative Financial Statements:

1. KORBIN COMPANY  Comparative Income Statements

For Years Ended December 31, 2017, 2016, and 2015

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Cost of goods sold    310,494      60%    250,507    63%      175,488     64%

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Admin.  expenses       46,419        9%        34,771      9%        22,759      8%

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for December 31, 2017, 2016, and 2015

                                                  2017            2016             2015

Assets

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Plant assets, net                     100.00             107%             64%

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a. Data:

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c) The balance sheet trend analysis shows whether the entity's financial position is improving or not in relation to the base period.  Each item is compared horizontally across periods.  The calculation of trend uses the amount in the non-base year and divides it by the amount of the base year x 100.

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