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fenix001 [56]
3 years ago
7

Consider adopting a cost-reducing technology that lowers annual production costs by $1000 per year (into perpetuity, starting in

year 1). If your opportunity cost of time is captured by a discount rate of 5%, what is the present) value of adopting the technology?
Business
1 answer:
Korvikt [17]3 years ago
6 0

Answer:

$20,000

Explanation:

Present Value of Perpetuity = Annuity / ( Interest rate-Growth rate). Where Annuity=1000, Interest rate=5%, Growth rate=0

Present Value of Perpetuity = $1,000/(0.05-0)

Present Value of Perpetuity = $1,000/0.05

Present Value of Perpetuity = $20,000

So, the present) value of adopting the technology is $20,000.

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