Question

Northwest Iron and Steel is considering getting involved in electronic commerce. A modest e-commerce package is available for $30,000. The company wants to recover the cost in 2 years. Find the equivalent amount of new revenue that must be realized every 6 months at an interest rate of 3% per quarter using a factor formula, and a single-cell spreadsheet function that includes an EFFECT function.
The equivalent amount of new revenue that must be realized every 6 months at an interest rate of 3% per week is:_________

Answer 1

Answer:

$8,693

Explanation:

Effective annual interets rate: AI = (1+i/m)^n - 1

i = 3*2=6%, m = 26

AI = [1+6%/26]^26 - 1

AI = 1.0617 - 1

AI = 0.0617

Let semi annual income be $X. So, present value of four semiannual income will be aggregated to get principal invetsed money of $30,000

30,000 = ∑[X/1.0617^n}

30,000 = 3.451 * X

X = 8693.132425383947

X = $8,693

Therefore, firm have to earn $8,693 after every 6 months at an interest rate of 3% per week to recover $30,000 initial investment in 2 years