5) A device is purchased for $10,000. It yields a $2,000 yearly net profit for first 4 years and $1,000 yearly net profit after that. The device is sold after 8 years. What is its mininmum price to break even with i=10%/vr?
5) A device is purchased for $10,000. It yields a $2,000 yearly net profit for first 4 years and $1,000 yearly net profit after that. The device is sold after 8 years. What is its mininmum price to break even with i=10%/vr?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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don't use excel also can you show me maths solving with equation by hand please....
Transcribed Image Text:5) A device is purchased for $10,000. It yields a $2,000 yearly net profit for first 4
years and $1,000 yearly net profit after that. The device is sold after 8 years. What
is its minimum price to break even with i=10%/yr?
Expert Solution
Step 1
2000 for 4 years
1000 for 4 years
Required rate =10%
Step 2
Present value FACTOR =1-(1+r)^-n/r
Present value FACTOR =1-(1.1)-4/0.1
present value FACTOR =3.17
Present value of 2000 YEARLY =2000×3.17
Present value of 2000=6340
Than 1000 after wards
Present value of 1000=3.17×1000/(1.1)4
Present value of 1000=2165.15
Total present value =6340+2165.15=8505.15
Total present value =8505.15
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