A corporation is trying to decide whether to buy thepatent for a product designed by another company.The decision to buy will mean an investment of $8million, and the demand for the product is notknown. If demand is light, the company expects areturn of $1.3 million each year for three years. Ifdemand is moderate, the return will be $2.5 millioneach year for four years, and high demand means areturn of $4 million each year for four years. It isestimated the probability of a high demand is 0.4,and the probability of a light demand is 0.2. Thefirm's (risk-free) interest rate is 12%. Calculate theexpected present worth of the patent. On this basis,should the company make the investment? (Allfigures represent after - tax values.)

Identifying Cash Flows: We analyze the potential returns based on the demand for the product:Light…

Answered: A corporation is trying to decide…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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ou decided to go and apply for a credit card at your local financial institution.The Prime rate currently announced on June 1 was 3.25%. You have goodcredit history and a FICO score of 700. The lowest rate that they can offer toindividuals is a 18.99% APR for a credit card that gives cashback on purchasesand rewards. You were offered 21.99% APR for the credit card. How did thelender determine or calculate what rate they should offer you?
An investor can invest money with a particular bank and earn a stated interest rate of 4.40%; however, interest will be compounded quarterly. What i are the nominal, periodic, and effective interest rates for this investment opportunity? Interest Rates Nominal rate Periodic rate Effective annual rate Rahul needs a loan and is speaking to several lending agencies about the interest rates they would charge and the terms they offer. He particularly likes his local bank because he is being offered a nominal rate of 4%. But the bank is compounding bimonthly (every two months). What is the effective interest rate that Rahul would pay for the loan? ○ 3.945% 4.152% 4.067% 04.186 % Another bank is also offering favorable terms, so Rahul decides to take a loan of $12,000 from this bank. He signs the loan contract at 5% comanded daily for 12 months. Based on a 365-day year, what is the total amount that Rahul owes the bank at the end of the loan's term? (Hint: To calculate the number of days,…
Multiperiod Consumption-Saving Plan Assume a person is 35 years old and plans to retire at age 65. So s/he has 30 more years to work. Assume the following additional information apply: Annual (real) income = $40,000 Real interest rate = 5% Expected live after retirement = 20 years Desired retirement income = 75% of pre-retirement income = $30,000 Prepare lifetime consumption-savings schedule for the person. First calculate how much s/he should have at retirement in order to consume $30,000 per year for 20 more years. This is the PV of annuity of $30,000 over 20 years at interest rate of 5%. 30,000* (PVIFAs°20) = $373,866.31. This amount is also equal to the future value of what s/he should save over her/his remaining 30 working years. (Annual saving)* (FVIFAS9,30) = $373,866.31. Solve for annual saving and you will get $5,627.22.
Investments Jack invests $1000 at a certain annual interest rate, and he invests another $2000 at an annual rate that is one-half percent higher. If he receives a total of $190 interest in I year, at what rate is the $1000 invested?
Suppose a person has a total credit card debt of $1,500$⁢1,500 that has a 7%7% yearly interest rate. This person also has a savings account with $2,500$⁢2,500 that pays 2%2% interest per year. Despite the net loss, the person keeps both.Calculate how many times the person appreciates the $1$⁢1 of savings more than $1$⁢1 of credit card debt if the person relates similarly to both values of percent paid and received. Enter your answer in the box below and round to two decimal places if necessary.
QUESTION 1 Muhammad takes out a loan of $ 2,130, at 8% simple interest, for 8 years. How much will he pay back at the end of year 8? QUESTION 2 Calculate the amount of interest on an investment of AED 103,971 at 8% simple interest for 5 years. QUESTION 3 If you deposit today $7,335 in an account for 6 years and at the end accumulate $10,885, how much compound interest rate (rate of return) you earned on this investment ? QUESTION 4 You will deposit 12,025 at 10% simple interest rate for 9 years, and then move the amount you would receive to an investment account at 12 % compound rate for another 3 years. How much money would you have at the end of the entire period ?
ECONOMICS UPVOTE WILL BE GIVEN. PLEASE WRITE THE SOLUTIONS LEGIBLY. NO LONG EXPLANATION NEEDED. Shala Co. is making a decision about investing in new technology. It currently expects to earn Php 100,000,000 in its lifetime. If it invests in brand-new equipment today, its expected earnings will permanently increase by 5% per day. What is the expected value of investing in the new equipment?
Assume that your father is now 50 years old and plans to retire after 10 years from now. He is expected to live for another 25 years after retirement. He wants a fixed retirement income of Rs. 5,00,000 per annum. His retirement income will begin the day he retires, 10 years from today, and then he will get 24 additional payments annually. Your father has current savings of Rs. 10,00,000 and he expects to earn a return on his savings @ 10% p.a., annually compounding. How much (to the nearest of rupee) must your father save during each of next 10 years to meet his retirement goal?
Suppose you purchased a corporate bond with a 10-year maturity. a $1,000par value, a 10% coupon rate, and semiannual interest payments. What all this means that you receive $50 interest payment at the end of each six-month period for 10 years (20 times). Then, when the bond matures, you will receive the principal amount (the face value) in a lump sum. Three years after the bonds were purchased, the going rate of interest (coupon rate) on new bonds fell to 6% (or 6% compounded semiannually). What is the current market value (P) of the bond (3 years after the purchase)?
QUESTION 2 1. You need $30,000 to buy a new Air-Con for your house in 4 years. What value you must have now if the compounded annually return is 10%. 2. Your father placed $50,000 in a trust fund for you. In 12 years what will be the worth of the savings. If the estimated rate of return on the trust fund is 7%?
Edward wants to take a long trip around Europe 7 years from now. He estimates that he will need $12,000 to finance the trip. Edward has found a stock portfolio that generates a 8% yearly rate of return. How much does Edward need to invest today to afford the trip? Round to the nearest dollar, do not enter a dollar sign.
A company has two independent investment opportunities. The initial capital occurs at the beginning of the first year. The company's required rate of return is 8 percent. The first option (A) requires an initial investment of 1500 million Fts with an expected life of 8 years. At the end of the 8th year company earns a yield of 4588.56 million Fts. The second option (B) requires an initial investment of 1400 million Fts with an expected life of 4 years. At the end of the 4th year company earns a yield of 2903.059 million Fts. The real profitability of the investments is between 5 and 25 percent. Calculate the Profitability Index of the project B! Give the result and choose the unit of the result. Answer:

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