The business plan for Knowlt, LLC, a start-up company that manufactures portable multigas detectors, showed equivalent annual cash flows of $400,000 for the first 5 years. If the cash flow in year 1 was $308,000 and the constant increase thereafter was $50,000 per year, what interest rate was used in the calculation? The interest rate used in the calculation was %.
The business plan for Knowlt, LLC, a start-up company that manufactures portable multigas detectors, showed equivalent annual cash flows of $400,000 for the first 5 years. If the cash flow in year 1 was $308,000 and the constant increase thereafter was $50,000 per year, what interest rate was used in the calculation? The interest rate used in the calculation was %.
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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Transcribed Image Text:The business plan for Knowlt, LLC, a start-up company that manufactures portable
multigas detectors, showed equivalent annual cash flows of $400,000 for the first 5 years.
If the cash flow in year 1 was $308,000 and the constant increase thereafter was $50,000
per year, what interest rate was used in the calculation?
The interest rate used in the calculation was
%.
ces
Expert Solution
Step 1
Required:
To compute the interest rate used to yield equivalent annual cash flows of $400,000 per year.
Note:
The initial investment has not been considered while computing NPV since this value has not been given in the question.
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