1- A product is worth only 10 % of its purchase price after 7 years. Use the red

Question

1- A product is worth only 10 % of its purchase price after 7 years.   Use the reducing balance process to calculate its % value after 3 years. ?

2- The functional cost of integrated electronic functions has fallen by a factor of a million in the past 30 years.   What's that expressed as an annual deflation rate (%)?

3- A project reaches tactical profitability when the cumulative cash flow has been reduced to zero. True or False

4-The company expects a 35 % return on an investment.   The project goal is to have a valuation of $2 M in 4 years.   What is its net present value in $M ?

Explanation / Answer

1) the value is 0.1 of the initial value. So 1*(1-x/100)7 = 0.1

Raising both sides to the 1/7 th power gives us,

Or (1-x/100) = 0.7197

Or x = 28.31%

using this 1*(1-28.31/100)3 = 0.3728 or the product falls to 37.28% of its original value.

2) In a similar fashion above, 1*(1-x/100)30 = 0.000001

Or x = 36.90% annual rate of deflation

3) True. It is said that you have reached tactical profitability when you just breakeven from all tactics applied. So yes when the free cash flows become zero it is a case of tactical profitability.

4) The 35% return should increase the present value to 2 millions in 4 years. So, X*(1+35/100)4 = 2

Or X = 0.8809 millions

Related Questions

Navigate

• Browse (All)
• Browse 1
• Subjects

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.