Question

Woodruff Inc. offers you a project that will pay you $17,000/year. If the cost of this project is $100,000, and the discount rate is assumed to be 13%, how long must the cash inflows ($17,000 per year) last, before it matures, so that you will accept this project

Answer 1

Answer:

The length of time = 12 years

Explanation:

The number of years the case would be determines the length time it takes the present value of  annuity of 17,000 to equate the initial cost

Initial cost = A× (1- (1+r)^(-n)/r =

A- 17,000, r- 13%, n - ?

So we will need to work out the value of " n"

100,000 = 17,000 × 1- 1.13^(-n)/0.133

100,000/17,000 =1- 1.13^(-n)/0.13

5.88235 ×0.13 = 1- 1.13^(-n)

n = 12

The number of years is approximately 12 years

The length of time = 12 years