An American company wants to expand its business in Europe, with a target to open an office in either Berlin or Paris. It has planned a 10-year project, but the expected benefits do not necessarily come at the same time, as summarised in the table below. City Establishment costs (in EUR) Berlin Paris 50000 55000 Benefit after 2nd year (in EUR) 22000 Benefit after 4th year (in EUR) 35000 23000 Benefit after 6th year (in EUR) 47000 Benefit after 8th year (in EUR) Benefit after 10th year (in EUR) 42000 62000 Perform a cost-benefit analysis to decide in which European city (if any) the company should open an office to remain in profit when (a) the accumulation factor is 1.12? (b) the discount factor is 0.886?
An American company wants to expand its business in Europe, with a target to open an office in either Berlin or Paris. It has planned a 10-year project, but the expected benefits do not necessarily come at the same time, as summarised in the table below. City Establishment costs (in EUR) Berlin Paris 50000 55000 Benefit after 2nd year (in EUR) 22000 Benefit after 4th year (in EUR) 35000 23000 Benefit after 6th year (in EUR) 47000 Benefit after 8th year (in EUR) Benefit after 10th year (in EUR) 42000 62000 Perform a cost-benefit analysis to decide in which European city (if any) the company should open an office to remain in profit when (a) the accumulation factor is 1.12? (b) the discount factor is 0.886?
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
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Transcribed Image Text:2. An American company wants to expand its business in Europe, with a target to open an office
in either Berlin or Paris. It has planned a 10-year project, but the expected benefits do not
necessarily come at the same time, as summarised in the table below.
City Establishment
costs
(in EUR)
Berlin
Paris
50000
55000
Benefit
after
2nd year
(in EUR)
22000
Benefit
after
4th year
(in EUR)
35000
23000
Benefit
after
6th year
(in EUR)
47000
Benefit
after
8th year
(in EUR)
Benefit
after
10th year
(in EUR)
42000
62000
Perform a cost-benefit analysis to decide in which European city (if any) the company should
open an office to remain in profit when
(a) the accumulation factor is 1.12?
(b) the discount factor is 0.886?
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