<span>A: to set interest rates</span>
Answer:
Margin of safety Amount by which sales can decrease before a loss is incurred.
The cost to produce today = 74000
At a discount of 12%, the future value of costs in 5 years = PV*(1+r)^n where PV = 74000, r= 12% = 0.12 and n = 5 years = 5
The value of costs in 5 years = 74000*(1+0.12)^5
The value of costs in 5 years = 74000*1.12^5
The value of costs in 5 years 130,413.28
Price in 5 years = 138,000
Profit = 138,000-130,413.28 = 7,586.72
The profit the firm will make on this asset (considering time value of money) = $7,586.72
