*Please Show All Work with step by step calculation to be chosen as best answer*
ID: 2638324 • Letter: #
Question
*Please Show All Work with step by step calculation to be chosen as best answer*
In each of the following Home Depot proposals determine the number of years that the given end-of year-cash flow must continue to provide the given rate of return on the given initial amount.
Case Initial amount Annual cash flow Rate of return
A $ 1,000 $ 250 11%
B 150,000 30,000 15
C 80,000 10.000 10
D 600 275 9
E 17,000 3.500 5
Explanation / Answer
1) F = A [ ( 1+r)n -1 ] / r
1000 = 250 [ ( 1+0.11)n -1] / 0.11
110 = 250 [ 1.11n -1]
1.11n- 1 = 0.44
1.11n = 1.44
n log 1.11 = log 1.44
n = 3.49 years
2) 150,000 = 30,000 [ ( 1+0.15)n -1] / 0.15
22500 = 30,000 [ ( 1+0.15)n -1]
(1+0.15)n -1 = 0.75
1.15n = 1.75
n = 4 years
3) 80,000 = 10,000[ ( 1+0.1)n -1] / 0.10
8000 = 10,000 [ 1.1n -1]
1.1n = 1.8
n = 6.16 years
4) 600 = 275 [ ( 1+0.09)n -1] / 0.09
54 = 275[ ( 1.09n -1)]
n = 2.08 years
5) 17,000 = 3500 [ ( 1+0.05)n -1] / 0.05
850 = 3500 [ 1.05n -1]
n = 4.45 years.
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