You are a marketing executive at an Atlanta based Marketing corporation. A clien
ID: 2683605 • Letter: Y
Question
You are a marketing executive at an Atlanta based Marketing corporation. A client has come to you and said they would like to take on a marketing project if it will EFFECTIVELY earn them 10.00% per year. The project you proposed will cost $100,000 today and $20,000 next year. The project will bring in equal cash flows starting next quarter with the last cash flow anticipated to come in 8 years from today. How much do these cash flows need to be each quarter so that the client earns an EFFECTIVE 10% rate per year? (ROUND YOUR ANSWER TO THE NEAREST 10)Explanation / Answer
return =10%
cost of project today =100000$
cost of project after 1 year =20000$
project cost today =100000+20000/1.1=118181$
time limit given =8 years
interest rate per quarter =10/4%=2.5 %
per quarter ie we have got 8*4=32 quarters
hence each cash flow should be =118181/((1+.025)32*32)= $1675
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