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kolezko [41]
3 years ago
8

A lottery winner can take $6 million now or be paid $600,000 at the end of each of the next 16 years. The winner calculates the

internal rate of return (IRR) of taking the money at the end of each year and, estimating that the discount rate across this period will be 4%, decides to take the money at the end of each year. Was her decision correct
Business
2 answers:
Semmy [17]3 years ago
5 0

Answer:

Yes, her decision was correct because of Net present value rule.

Explanation:

the net present value (NPV) applies to a series of cash flows occurring at different times.

The present value of a cash flow depends on the interval of time between now and the cash flow. It also depends on the discount rate. NPV accounts for the time value of money. It provides a method for evaluating and comparing capital projects or financial products with cash flows spread over time, as in loans, investments, payouts from insurance contracts plus many other applications.

Time value of money dictates that time affects the value of cash flows.

harkovskaia [24]3 years ago
5 0

Answer:

She was correct, the IRR for the cash flow is 6.15% compared to the 4% discount rate.

Explanation:

The two basic ways to decide whether a project is feasible or not are the net present value (NPV) and the internal rate of return (IRR).

The net present value is the prime test that you must always use first. But in this case, you do not need to calculate it because the IRR is higher than the discount rate. The IRR is the discount rate at which the NPV will equal 0. So an IRR higher than the discount rate will always yield a positive NPV.

Projects are considered feasible when the NPV ≥ 0, and if you have to choose between two or more mutually exclusive projects and both have positive NPVs, you should choose the project with the highest IRR (or MIRR if you really like math).

Since I like math, the NPV = $991,377, and you need more information to calculate MIRR.

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Such a person would be making an intuitive decision.

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In a catalog a coat was on sale for $65.55 this week. It regularly sells for $77.77. If the sales tax is 6% and shipping is belo
bazaltina [42]

Answer:

$14.96

Explanation:

Shipping and handling charges are attached.

Given: Discounted price= $65.55.

           Regular sales price= $77.77

           Sales tax= 6%.

Now, find the cost of coat after tax.

Cost of coat= 77.77+(77.77\times 6\%)

⇒ Cost of coat= 77.77+ 4.66= \$ 82.43

Adding shipping charges to the cost= 82.43+8.95= \$91.39

Hence, cost of coat after tax and shipping charges= $91.39.

Next finding total cost of coat if sold at discount after tax.

Cost of coat at discounted price after tax= 65.55+(65.55\times 6\%)

⇒ Cost of coat at discounted price after tax= 65.55+ 3.93

⇒ Cost of coat at discounted price after tax= \$ 69.48

Adding shipping charges to the cost of coat= 69.48+6.95=\$ 76.43

Hence, cost of coat at discounted price after tax and shipping charges= $76.43.

Finding saving amount by ordering coat at the sale price or discounted price.

∴ Saving = Total\ cost\ of\ coat\ at\ regular\ price - Total\ cost\ of\ coat\ at\ discounted\ price

Saving= 91.39-76.43= \$ 14.96

Hene, Total saving by ordering coat at the sale price is $14.96

7 0
3 years ago
The following is a schedule of the projected unit sales of Western Company, which manufactures casual wear. Each unit sells for
Likurg_2 [28]

Answer:

The correct option is A,the fourth quarter budgeted revenue is $32500 as shown below.

Explanation:

The budgeted sales quantity for fourth quarter is 1300 units at $25 each.

From Economics equation of revenue equals price multiplied by quantity, the revenue for the fourth quarter is calculated below.

Revenue=P*Q

P=price=$25

Q=budgeted quantity=1300 units

Revenue=$25*1300

Revenue=$32500

The value of this revenue that would be collected in the same quarter is 75%*$32500 is $24375 while the balance of $8125 in the first quarter of the succeeding year.

This way cash flow planning in terms of matching capital payments with cash receipt is better enhanced.

7 0
3 years ago
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kirill [66]

In marketing, an example of a Sales promotion is a consumer context.

<h3>What is a Sales promotion?</h3>

This refers to strategy employed by a firm who uses a campaign or offer to increase the consumer;s interest or demand in its product

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