Suppose you are in business and you buy a new machine for $40,000. After paying all other expenses, $7,000 is left that can be attributed to the pro. ductivity of the machine, which only has a one-year useful life. What is the rate of interest earned by this machine? If you had to pay 20 percent to borrow the money to buy such a machine, would you do so? Would you borrow the money at 10 percent?

Suppose you are in business and you buy a new machine for $40,000. After paying all other expenses, $7,000 is left that can be attributed to the pro. ductivity of the machine, which only has a one-year useful life. What is the rate of interest earned by this machine? If you had to pay 20 percent to borrow the money to buy such a machine, would you do so? Would you borrow the money at 10 percent?

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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You have to buy a new copier. The cost of the copier is $2,075, plus $410 per year in maintenance costs. The copier will last for five years. Alternatively, a local company offers to lease the copier to you and do the maintenance as well. If your discount rate is 6.4 % what is the most you would be willing to pay per year to lease the copier (your first lease payment is due in one year)?
Your friend in mechanical engineering has invented a money machine. The main drawback of the machine is that it is slow. It takes one year to manufacture $800. However, once built, the machine will last forever and will require no maintenance. The machine can be built immediately, but it will cost $8,000 to build. Your friend wants to know if he should invest the money to construct it. If the interest rate is 4.0% per year, what should your friend do? The NPV of the machine is $ What should your friend do? (Round to the nearest cent.) (Select the best choice below.) O A. Accept the machine because the NPV is equal to or greater than $0. O B. Reject the machine because the NPV is less than $0. O C. Reject the machine because the NPV is equal to or greater than $0. O D. Accept the machine because the NPV is equal to or less than $0. ..
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You have to decide whether to invest $100 in a friend's enterprise, where in a year's time the money will increase to $130. You have agreed that your friend will then repay you $120, keeping $10 for himself But instead he may choose to run away with the whole $130. Any of your money that you don't invest in the enterprise you can invest elsewhere safely at the prevailing rate of interest r and get $100 (1+r) next year. For interest rate r> __A___% there is an equilibrium outcome of the infinitely repeated game in which each period you invest with your friend and he repays as agreed. If the rate of interst is 10% per year, an alternative profit-splitting agreement giving $__B___ for the friend is an equilibrium outcome of the infinitely repeated game, where each period you invest with your friend and he repays as agreed. Answer A= ? Answer B= ?
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