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Trava [24]
3 years ago
8

Tangerine Inc. is evaluating a capital project for investment. The initial cash outflow in Year 0 is $1,500 followed by cash inf

low of $500 each year for four years. Which of the following is the terminal value of the project? Assume the required rate of return is 12%. (Round off the answer to two decimal places.) a. ​$1,889.45 b. ​$1,626.57 c. ​$3,336.78 d. ​$2,486.23 e. $2,389.66​
Business
1 answer:
irina [24]3 years ago
8 0

Answer:

Terminal value

= 500(1+0.12)3 + 500(1+0.12)2 + 500(1+0.12)1+ 500(1+0.12)0

= 500(1.12)3 + 500(1.12)2 + 500(1.12)1 + 500(1.12)0

= 702.464 + 627.2 + 560 + 500

= $2,389.66

The correct answer is E

Explanation:

Terminal value is a function of number of years cashflow for each year can be re-invested at the appropriate discount rate. The cashflow for year 1 can be re-invested for 3 years since the life of the project is 4 years. cashflow for year 2 can be re-invested for 2 years, cashflow for year 3 can be re-invested for 1 year and cashflow for year 4 can be re-invested for 0 year.

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3 0
3 years ago
An investment of $9,875 earns 4.8% interest compounded monthly over 12 years. Approximately how much interest is earned on the i
Sladkaya [172]

Answer:

Option (c)  $7,672

Explanation:

Data provided in the question:

Investment amount i.e principle = $9,875

Interest rate,r = 4.8%

Time, t = 12 years

Now,

Future value = Principle ×\left( 1 + \frac{r}{n} \right)^{\Large{n \cdot t}}

n = number of times compounded per year

Future value == 9875\times\left( 1 + \frac{ 0.048 }{ 12 }\right)^{\Large{ 12 \cdot 12 }}

Future value =9875\times{ 1.004 } ^ { 144 }

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Hence,

Option (c)  $7,672

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