Answer:
127.50
Explanation:
850x2 employees=1700
1700x.075(7.5%)=127.50
Selected sales and operating data for three divisions of different structural engineering firms are given as follows: Division A Division B Division C Sales $ 12,000,000 $ 14,000,000 $ 25,000,000 Average operating assets $ 3,000,000 $ 7,000,000 $ 5,000,000 Net operating income $ 600,000 $ 560,000 $ 800,000 Minimum required rate of return 14% 10% 16% Required: 1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover. 2. Compute the residual income (loss) for each division. 3. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. a. If performance is being measured by ROI, which division or divisions will probably accept or reject the opportunity
Answer:
1. See part 1 below for the calculations.
2. We have:
Division A's Residual Income (loss) = $180,000
Division B's Residual Income (loss) = ($140,000)
Division C's Residual Income (loss) = $0
3.a. Only Division B will probably accept the investment opportunity.
3.b. Divisions A and B will probably accept the investment opportunity.
Explanation:
Note: This question is not complete as the part 3-b of the requirement is omitted. The question is therefore completed before answering the question by providing the part 3-b as follows:
b. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
The explanation of the answer is now provided as follows:
The following are given:
Division A Division B Division C
Sales $12,000,000 $14,000,000 $25,000,000
Average operating assets $3,000,000 $7,000,000 $5,000,000
Net operating income $600,000 $560,000 $800,000
Min. req'd rate of return 14% 10% 16%
1. Compute the return on investment (ROI) for each division using the formula stated in terms of margin and turnover.
The relevant formulae are as follows:
Margin = Net Operating Income / Sales
Turnover = Sales / Average Operating Assets
Return on Investment = Margin * Turnover
Therefore, we have:
Division A:
Margin = $600,000 / $12,000,000 = 0.05, or 5%
Turnover = $12,000,000 / $3,000,000 = 4 times
Return on Investment = 5% * 4 = 0.20, or 20%
Division B:
Margin = $560,000 / $14,000,000 = 0.04, or 4%
Turnover = $14,000,000 / $7,000,000 = 2 times
Return on Investment = 4% * 2 = 0.08, or 8%
Division C:
Margin = $800,000 / $25,000,000 = 0.032, or 3.20%
Turnover = $25,000,000 / $ 5,000,000 = 5 times
Return on Investment = 3.2% * 5 = 0.16, or 16%
2. Compute the residual income (loss) for each division.
The following is the formula to use:
Residual Income (loss) = Net Operating Income - (Minimum Required Return * Average Operating Assets)
Therefore, we have:
Division A's Residual Income (loss) = $600,000 - (14% * $3,000,000) = $180,000
Division B's Residual Income (loss) = $560,000 - (10% * $7,000,000) = ($140,000)
Division C's Residual Income (loss) = $800,000 - (16% * $5,000,000) = $0
3-a. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. If performance is being measured by ROI, which division or divisions will probably accept the opportunity?
If a division's Return on Investment (ROI) is less than 15%, the decision criterion is to accept the investment opportunity. Otherwise, it will be rejected. Therefore, only Division B is will probably accept the investment opportunity, based on the results of Part 1 above. Division A and C will reject it.
3-b. Assume that each division is presented with an investment opportunity that would yield a 15% rate of return. If performance is being measured by residual income, which division or divisions will probably accept the opportunity?
The decision criterion is for a division to accept the investment opportunity if its minimum required rate of return is lower than 15%. Otherwise, it will be rejected.
Based on the information in the question, Divisions A and B will probably accept the investment opportunity. Division C will reject it.
An Uber driver faces costs for driving that include sunk costs like insurance that contribute $.50 to the average cost per mile. Yet when a rider offers to pay less than $0.50 per mile for a ride, the driver agrees because
Answer:
sunk costs like auto insurance (in this case) do not increase as driving increases
Explanation:
In the case when the uber driver faces cost for driving so the sunk cost such as insurance that contribute $0.50 but the other rider pay lower than $0.50 per mile so here the driver agrees as the sunk cost would not increased in the same way like driving rises.
Therefore the above represent the answer
Explain the difference between a Trade discount and Cash discount?
Answer:
Explanation:
A trade discount is one that is allowed by the wholesaler to the retailer, calculated on the list price of the product, whereas cash discount is allowed to stimulate instant payment of the goods purchased. The main difference between trade discount and cash discount is that ledger account is opened for a cash discount, but no for a trade discount.
National Furniture Company has 25,000 shares of cumulative preferred 2% stock, $75 par and 200,000 shares of $10 par common stock. The following amounts were distributed as dividends: Year 1 $25,000 Year 2 88,000 Year 3 95,500 Determine the dividends per share for preferred and common stock for each year. If an answer is zero, enter '0'. Round all answers to two decimal places.
Answer:
Year 1
Preferred Dividend = $25,000
Common Stock Dividend = $0
Year 2
Preferred Dividend = $37,500
Common Stock Dividend = $50,500
Year 3
Preferred Dividend = $25,000
Common Stock Dividend = $70,500
Explanation:
The dividends per share for preferred and common stock for each year.
Preferred Dividend
Is a fixed charge. When it is cumulative, all dividends in arrears are accumulated an paid in future when funds become sufficient before other dividends are paid.
Preferred Dividend = 25,000 x $75 x 2 % = $37,500
Common Stock Dividend
Holders of Common Stock receive their dividends after the Preferred Stock holders have received their dividends.
Calculations
Year 1
Preferred Dividend = $25,000 (owing $12,500)
Common Stock Dividend = $0
Year 2
Preferred Dividend = $25,000 + $12,500 (owing ) = $37,500
Common Stock Dividend = $88,000 - $37,500 = $50,500
Year 3
Preferred Dividend = $25,000
Common Stock Dividend = $95,500 - $25,000 = $70,500
Test Tech has preferred stock outstanding that pays an $10.85 annual dividend. It price is $125. What is the required rate of return on the preferred stock
Answer:
8.7%
Explanation:
Calculation to determine the required rate of return on the preferred stock
Using this formula
Required rate of return=Annual dividend/Price
Let plug in the formula
Required rate of return=$10.85/$125
Required rate of return=0.087*100
Required rate of return=8.7%
Therefore the required rate of return on the preferred stock is 8.7%
The price elasticity of demand measures: Group of answer choices how responsive consumers are in the quantity they want when consumer incomes change how responsive producers are in the quantity they produce when the price changes how responsive consumers are in the quantity they want when the price changes how responsive producers are in the quantity they produce when consumer incomes change
Answer:
how responsive consumers are in the quantity they want when the price changes
Explanation:
The price elasticity of demand is
= Percentage change in quantity demanded ÷ percentage change in demand
So based on the above formula it shows that the consumers are responsive with regard to the quantity they need at the time when the price is changed
Therefore the above represent the answer
Answer:
Price
Inelastic
Elastic
Explanation:
got it right on edg
Cash Received from Customers—Direct Method Sales reported on the income statement were $480,000. The accounts receivable balance increased $54,000 over the year. Determine the amount of cash received from customers. $fill in the blank 1
Answer:
$426000
Explanation:
Cash = sales - account receivable
480000 - 54000 = $426000
On January 1, 2009, Diego owed $14,033 to his friend Ricardo, who was kind enough not to charge Diego any interest. Each month during 2009, Diego paid Ricardo some of the money he owed. If Diego still owed Ricardo $8,261 on January 1, 2010, what was the average amount of Diego's monthly payments?
Answer:
$481
Explanation:
Amount paid = Amount lent - Amount left
Amount paid = $14,033 - $8,261
Amount paid = $5,772
Average amount paid each month = Amount paid / Number of months
Average amount paid each month = $5,772 / 12
Average amount paid each month = $481
So, the average amount of Diego's monthly payments is $481.
Find the present value of $19,000 in 11 months at 5.1% interest
Answer:
$19,886.396
Explanation:
Given :
Interest rate = 5.1% = 5.1
Principal = $19000
Period = 11 months = (11/12)year
The present value of 19000 in 11 months at 5.1% interest Can be obtained using the relation:
PV = P(1 + r)^n
PV = 19000(1 + 0.051)^(11/12)
PV = 19000(1.051)^(11/12)
PV = 19000 * 1.0466524
PV = 19886.396
Hence, the present value is $19,886.396
Stop and Go has a 4 percent profit margin and a 43 percent dividend payout ratio. The total asset turnover is 1.65 and the debt-equity ratio is .70. What is the sustainable rate of growth
Answer:
6.83%
Explanation:
Given :
Profit margin = 4% = 0.04
Dividend payout ratio = 43% = 0.43
Asset turnover = 1.65
Debt to equity = .7
The retention rate is 1 - the payout ratio = 1 - 0.43 = 0.57
The sustainable growth rate is given by :
(ROE * Retention Rate) / (1 - (ROE * Retention Rate))
Return on Equity (ROE) :
Profit margin * Asset turnover * Equity multiplier
Equity ratio = debt to equity ratio + 1 = 0.7 + 1 = 1.7
= 0.04 * 1.65 * 1.7 = 0.1122
Sustainable growth rate :
(ROE * Retention Rate) / (1 - (ROE * Retention Rate))
(0.1122 * 0.57) / (1 - (0.1122 * 0.57))
0.063954 / 0.936046
= 0.0683235
= 6.83%
A company issued $300,000, 10-year, 10 percent bonds at 105. What is the total amount of interest expense that will be recorded over the life of these bonds
Answer:
$285,000
Explanation:
Interest paid in cash = $300,000 *10%*10 years
Interest paid in cash = $300,000
Premium received = $300,000/100*5
Premium received = $15,000
Net interest expense in life of bonds = Interest paid in cash - Premium received
Net interest expense in life of bonds = $300,000 - $15,000
Net interest expense in life of bonds = $285,000
Several explanations account for the limited use of quantitative management. Many aspects of a management decision _____ expressed through mathematical symbols and formulas.
Answer:
cannot
Explanation:
Quantitative management can be regarded as approach to management that makes utilize tools such as computers as well as mathematical techniques inorder to sift through financial statistics in stocks selection and others. Managers do use Quantitative management in observing historical quantitative relationships as well as to incorporate all the relationships into what is known as “models,” so stocks can be picked.
Quantitative techniques helps managers to use variety of tools from
operational research, statistics as well as mathematics and economics. It should be noted that Several explanations account for the limited use of quantitative management. Many aspects of a management decision cannot expressed through mathematical symbols and formulas.
The General Fund lends cash at the beginning of the year to an Enterprise Fund, expecting to be repaid before the end of the year. What account should be debited in the General Fund
Answer:
due from enterprise fund
Explanation:
In the given scenario where General Fund lends cash at the beginning of the year to an Enterprise Fund expecting to be repaid before the end of the year, the General fund will need to record a debit to its books.
As the enterprise fund is making repayment to the account credits will reduce the debit figure until it is zeroed off.
This is like an account receivable for the enterprise fund.
So a debit will be passed to due from enterprise fund.
g The gross domestic product (GDP) is looking at the total production of goods and services that are produced within the United States economy. Examine what the GDP has done in the past 5 years in the United States. What does this indicator tell us about how the economy is doing
Answer and Explanation:
The gross domestic product(gdp) is the total market value of all goods and services produced in a country in a year.
The GDP growth rate of US in the last five years is as given below:
2016: 1.64%
2017: 2.37%
2018: 2.93%
2019: 2.16%
2020: -3.51%
2021 first quarter: 6.39%
From the above, we can see the growth rate of US GDP has grown steadily from 2016 until the year 2019 when there is a decline of 0.77% from the previous year. In 2020, the US GDP suffers a farther decline as a result of the coronavirus pandemic and has a negative growth rate of -3.5%. However in the first quarter of this year, the growth rate improves considerably, given new innovations and work from home(WFH) work arounds to tackle the challenges of the pandemic to the traditional workplace.
On July 1, Hartford Construction purchases a bulldozer for $228,000. The equipment has a 9-year life with a residual value of $16,000. Hartford uses the units-of-output method depreciation, and the bulldozer is expected to yield 26,500 operating hours.
Required:
(a) Calculate the depreciation expense per hour of operation.
(b) The bulldozer is operated 1,250 hours in the first year, 2,755 hours in the second year, and 1,225 hours in the third year of operations. Journalize the depreciation expense for each year.
Answer:
a. Depreciation expense per hour:
= (Cost - salvage value) / Expected operating hours
= (228,000 - 16,000) / 26,500
= $8 per hour
b. First year depreciation: Second year depreciation:
= 1,250 * 8 = 2,755 * 8
= $10,000 = $22,040
Third year depreciation:
= 1,225 * 8
= $9,800
Journal entries
Date Account Title Debit Credit
June 30, Year 1 Depreciation $10,000
Accumulated Depreciation $10,000
Date Account Title Debit Credit
June 30, Year 2 Depreciation $22,040
Accumulated Depreciation $22,040
Date Account Title Debit Credit
June 30, Year 3 Depreciation $9,800
Accumulated Depreciation $9,800
How jse reported the negative impact of the coronavirus on the economic conditions
Answer:
C
Explanation:
sorry if im wrong tried my best
what is management report
Answer:
A management report is a collection of data and operational information from various business departments that is presented in an understandable way, allowing managers to make better-informed decisions.
Explanation:
3. (20 points) You can buy or sell a 3.5% coupon $1,000 par U.S. Treasury Note that matures in 6 years. The first coupon payment pays 6 months from now, and the Note pays coupons semi-annually until maturity. It also pays par on maturity. The Yield to Maturity of the Note right now (treat this as your discount rate) is 3.000%. (a) What are the cash flows associated with this Note
Answer:
Cash flows associated with the Note are 12 semiannual coupon payments of $17.50 each and the face value of $1,000
Explanation:
The cash flows of the note comprise of the semiannual coupon payments for 6 years ,which is 12 semiannual coupon payments, since 2 semiannual coupon payments would be made in each of the 6 years until maturity of the U.S. Treasury Note as well as the face value of the note , which is $1000 payable to the investors in the note at maturity.
semiannual coupon payment=face value*coupon rate*6/12
face value=$1,000
coupon rate=3.5%
semiannual coupon payment=$1000*3.5%*6/12
semiannual coupon payment=$17.50
face value=$1000
considers the problem of building railway tracks under the assumption that pieces fit exactly with no slack. Now consider the real problem, in which pieces don’t fit exactly but allow for up to 10 degrees of rotation to either side of the "proper" alignment. Explain how to formulate the problem so it could be solved by simulated annealing
Answer:
By using simulated annealing we will sample the next state, evaluate and take the next state according to the probability e^Δv
Value function ( V ) = ( a * number of gaps ) + ( b * number of misconnected pieces ) + ( c * sum of sizes of gaps )
a,b,c = adjustable
Explanation:
In order to solve this problem by simulated annealing
First condition : assuming that pieces of the railways tracks fit exactly with no slack
Assume a state configuration of 32 pieces, use of discrete operations whose function is to remove pieces and reconnect it somewhere else without slack , we will also consider a continuous operations to help change angles to real values
Second condition : considering a real problem
This condition can be considered to be a closed loop because when one joint is moved all other joints are moved, here we will consider using a heuristic function
By using simulated annealing we will sample the next state, evaluate and take the next state according to the probability e^Δv
Value function ( V ) = ( a * number of gaps ) + ( b * number of misconnected pieces ) + ( c * sum of sizes of gaps )
a,b,c = adjustable
Lakeesha bought 300 shares of stock at $48.25 per share. Her broker charges 3% commission for round lots and 4% for odd lots. Calculate the total cost of the stock purchase.
Answer:
$14909.25
Explanation:
Given :
Recall : A round lot is any number of shares that can be evenly divided by 100 while an odd lot is any number of shares between 1 and 100.
Therefore, 300 shares will be classified as a round lot.
Commission paid on round lot = 3%
Price per share = $48.25
Share price for 300 : ($48.25 * 300) = $14,475
Commission fee = 3% * 14475 = $434.25
Total cost of stock purchase :
$(14475 + 434.25)
= $14909.25
On a 100-acre farm, a farmer is able to produce 3,000 bushels of wheat when he hires 2 workers. He is able to produce 4,400 bushels of wheat when he hires 3 workers. Which of the following possibilities is consistent with the property of diminishing marginal product?
a. The farmer is able to produce 5,600 bushels of wheat when he hires 4 workers.
b. The farmer is able to produce 5,400 bushels of wheat when he hires 4 workers.
c. The farmer is able to produce 5,200 bushels of wheat when he hires 4 workers.
d. Any of the above could be correct
On January 1, 20X8, Parent Company acquired 90 percent ownership of Subsidiary Corporation, at underlying book value. The fair value of the noncontrolling interest at the date of acquisition was equal to 10 percent of the book value of Subsidiary Corporation. On Mar 17, 20X8, Subsidiary purchased inventory from Parent for $90,000. Subsidiary sold the entire inventory to an unaffiliated company for $120,000 on November 21, 20X8. Parent had produced the inventory sold to Subsidiary for $62,000. The companies had no other transactions during 20X8.
Based on the information given above, what amount of sales will be reported in the 20X8 consolidated income statement?
a. $62,000
b. $120,000
c. $90,000
d. $58,000
Answer:
b. $120,000
Explanation:
The computation of the amount of sales will be reported in the 20X8 consolidated income statement is shown below;
= Total consolidated sales - Intra company sales
= $120,000 + $90,000 - $90,000
= $120,000
Hence, the amount of sales will be reported in the 20X8 consolidated income statement is $120,000
Therefore the option b is correct
Widmer Company had gross wages of $194,000 during the week ended June 17. The amount of wages subject to social security tax was $174,600, while the amount of wages subject to federal and state unemployment taxes was $24,000. Tax rates are as follows:
Social security 6.0%
Medicare 1.5%
State unemployment 5.4%
Federal unemployment 0.8%
The total amount withheld from employee wages for federal taxes was $38,800. If an amount box does not require an entry, leave it blank. If required, round answers to two decimal places.
Required:
a. Journalize the entry to record the payroll for the week of June 17.
b. Journalize the entry to record the payroll tax expense incurred for the week of June 17.
Answer:
a. See the journal entries below.
b. See the journal entries below.
Explanation:
a. Journalize the entry to record the payroll for the week of June 17.
The journal entries will look as follows:
Date Accounts Debit ($) Credit ($)
June 17 Wages Expense 194,000
Social sec. tax payable ($194,000 * 6%) 11,640
Medicare tax payable ($194,000 * 1.5%) 2,910
Employees Federal income tax payable 38,800
Wages Payable (Balancing figure) 140,650
(To record payroll for the week)
b. Journalize the entry to record the payroll tax expense incurred for the week of June 17.
The journal entries will look as follows:
Date Accounts Debit ($) Credit ($)
June 17 Payroll Tax Expense 16,038
Social sec. tax payable ($194,000 * 6%) 11,640
Medicare tax payable ($194,000 * 1.5%) 2,910
State unemp. taxes paybl. ($24,000 * 5.4%) 1,296
Fed. unemp. taxes paybl. ($24,000 * 0.8%) 192
(To record payroll taxes for the week)
Bloom Company management predicts that it will incur fixed costs of $251,000 and earn pretax income of $365,100 in the next period. Its expected contribution margin ratio is 61%. Required: 1. Compute the amount of total dollar sales. 2. Compute the amount of total variable costs
Answer and Explanation:
The computation is shown below;
a. The amount of the total dollar sales is
Pretax income = Sales value - Variable cost - Fixed cost
where,
Sales value - variable cost = Contribution margin
$365,100 = Contribution margin - $251,000
So,
Contribution margin = $616,100
Now
Contribution margin = Sales value × Contribution margin ratio
$616,100 = Sales value × 61%
So,
Sales value = $1,010,000
b. The total variable cost is
= Sales - fixed cost - pre tax income
= $1,010,000 - $251,000 - $365,100
= $393,900
Suppose that people expect inflation to equal 3% but instead prices rise by 5%. Which of the following parties would be helped by this unexpectedly high inflation?
a. the government
b. a homeowner with a fixed-rate mortgage
c. a union worker in the second year of a labor contract d. a college that has invested some of its endowment in government bonds
Answer: b. a homeowner with a fixed-rate mortgage
Explanation:
Inflation erodes the value of money such that $1 today is stronger than $1 a year from now. When mortgage rates are calculated, they take into account the expected inflation rates so that the interest payments will not be smaller than they should be as inflation increases.
If inflation increases more than it was expected to have increased therefore, a person paying a fixed rate would benefit because they would be paying less in effect on account of inflation having made their payments weaker.
Piechocki Corporation manufactures and sells a single product. The company uses units as the measure of activity in its budgets and performance reports. During May, the company budgeted for 7,500 units, but its actual level of activity was 7,450 units. The company has provided the following data concerning the formulas used in its budgeting and its actual results for May: Data used in budgeting: Fixed element per month Variable element per unit Revenue - $ 35.00 Direct labor $ 0 $ 5.60 Direct materials 0 13.00 Manufacturing overhead 32,000 2.50 Selling and administrative expenses 26,300 0.30 Total expenses $ 58,300 $ 21.40 Actual results for May: Revenue $ 261,850 Direct labor $ 41,800 Direct materials $ 99,895 Manufacturing overhead $ 47,500 Selling and administrative expenses $ 30,550 The direct labor in the planning budget for May would be closest to:
Answer:
$42,000
Explanation:
Direct Labor per Unit = $5.60
Total Planning Budget Units = 7,500 Units
Direct Labor for Planning Budget = Total Planning Budget Units * Direct Labor per Unit
Direct Labor for Planning Budget = 7,500 Units * $5.60
Direct Labor for Planning Budget = $42,000
So, the direct labor in the planning budget for May would be closest to $42,000.
Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that at the optimal quantity for each firm. Furthermore, the quantity the firm produces in long-run equilibrium is the efficient scale. True or False: This indicates that there is a markup on marginal cost in the market for shirts. True
Answer:
Because this market is a monopolistically competitive market, you can tell that it is in long-run equilibrium by the fact that P = ATC, P>ATC, MR =MC, or MR>MC at the optimal quantity. Furthermore, the quantity the firm produces in long-run equilibrium is the efficient scale. True False
This indicates that there is a markup on marginal cost in the market for shirts. True False
Explanation:
In the long run, monopolistically-competitive entities produce at a level where marginal cost and marginal revenue are equal. This makes it impossible for individual companies to sell their products at prices above the average cost. This situation means that monopolistically-competitive companies will always earn zero economic profit in the long run.
The GASB requires governments to present budgetary comparisons in their external annual financial statements (either as an additional financial statement or as schedules in required supplementary information). What does the GASB require these statements/schedules to include
Answer:
The GASB requires these statements/schedules to include:
1. budgetary comparisons for the activities that are reported in the general fund and each major special revenue fund.
2. schedules showing the original budget, the final appropriations budget, and actual inflows, outflows, and balances on a budgetary basis.
Explanation:
The purpose of GASB section 34 is to improve the financial transparency of state and local governments' fiscal reports. It also increases governmental accountability, making it possible for citizens to participate in deciding operating budgets of their states and local governments.
Lerman Company has preferred stock outstanding. It pays an annual dividend of $20. If its current price is $70, what is the discount rate investors are using to value the stock
Answer:
the discount rate is 28.57%
Explanation:
The computation of the discount rate is shown below:
Discount rate = Dividend ÷Share Price of Preferred stock
= $20 ÷ $70
= 28.57%
By dividing the dividend from the price of the preferred stock we can get the discount rate
Hence, the discount rate is 28.57%
The discount rate is 28.57% when the investors are using it to value the stock.
What is the discount rate?The discount rate is used in the calculations of present value to find the discounting factor in cash flow analysis. It is the rate of return that is used to discount future cash flows.
The formula of discount rate is:
[tex]\text{Discount Rate} =\dfrac{\text{ Dividend}}{\text{Share Price of Preferred Stock}}[/tex]
The computation of the discount rate is shown below:
According to the given information,
Dividend = $20, and
Share Price of Preferred stock =$70.
Substitute the given values in the above formula:
[tex]\text{Discount Rate} =\dfrac{\text{ Dividend}}{\text{Share Price of Preferred Stock}}\\\\\\\text{Discount Rate} =\dfrac{\$20}{\$70}\\\\\\\text{Discount Rate} = 28.57\%[/tex]
Therefore, the discount rate is 28.57%.
To learn more about the discount rate, refer to:
https://brainly.com/question/1926659
A certain machine will have a cost of $25,000 (then $) six years from now. Find the PW of the machine if the real interest rate is 10% per year and the inflation rate is 5% per year using (a) constant-value dollars, and (b) then-current dollars.
Answer:
The Present Worth of the machine if the real interest rate is 10% per year and the inflation rate is 5% per year, using:
(a) constant-value dollars
= $10,518.60
(b) then-current dollars
= $10,818.65
Explanation:
a) Data and Calculations:
Cost a certain machine six years from now = $25,000
Time period = 6 years
Real interest rate = 10%
Inflation rate = 5%
Nominal interest rate = 5% (10% - 5%)
Discount factor at 10% for 6 years = 0.564
Discount factor at 5% for 6 years = 0.746
PW using:
a) Constant-value dollars = $18,650 ($25,000 * 0.746)
PW = $10,518.60 ($18,650 * 0.564)
b) Then-current dollars:
The nominal rate = 0.1 + 0.05 + (0.1 * 0.05) = 0.155
$10,818.65 ($25,000 * 0.432746)
