(a) At time t = 0 a construction company pays £60,000 to purchase a plot of land and material to build a house that will be sold for £100,000 after one year (t = 1). For 11 months, from t = 0 to t = 11/12, the company has also to pay £35,000 for the salary of the workers. Assuming that the payment of the salaries can be modeled as an annuity paid continuously, calculate the net present value of the project. The interest rate is 3% p.a. effective. (b) For a 6-month internship, a student is paid £20 per day. The effective interest rate is 3% p.a. in the first three months and 2% p.a. in the final three months. Modeling the daily payments as an annuity paid continuously, compute the accumulated value of the salary at the end of the internship. Consider 30 days in each month and 360 days in a year.

(a) At time t = 0 a construction company pays £60,000 to purchase a plot of land and material to build a house that will be sold for £100,000 after one year (t = 1). For 11 months, from t = 0 to t = 11/12, the company has also to pay £35,000 for the salary of the workers. Assuming that the payment of the salaries can be modeled as an annuity paid continuously, calculate the net present value of the project. The interest rate is 3% p.a. effective. (b) For a 6-month internship, a student is paid £20 per day. The effective interest rate is 3% p.a. in the first three months and 2% p.a. in the final three months. Modeling the daily payments as an annuity paid continuously, compute the accumulated value of the salary at the end of the internship. Consider 30 days in each month and 360 days in a year.

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

ChapterB: Differential Calculus Techniques In Management

Section: Chapter Questions

Problem 7E

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Question

6.
(a) At time t
=
0 a construction company pays £60,000 to purchase a plot of land and material to build
a house that will be sold for £100,000 after one year (t = 1). For 11 months, from t
= 0 to
t = 11/12, the company has also to pay £35,000 for the salary of the workers. Assuming that the
payment of the salaries can be modeled as an annuity paid continuously, calculate the net present
value of the project. The interest rate is 3% p.a. effective.
(b) For a 6-month internship, a student is paid £20 per day. The effective interest rate is 3% p.a. in the
first three months and 2% p.a. in the final three months. Modeling the daily payments as an annuity
paid continuously, compute the accumulated value of the salary at the end of the internship.
Consider 30 days in each month and 360 days in a year.

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