1-a). PV = FV / (1 + r)n
= $145,000 / (1 + 0.11)4 = $145,000 / 1.5181 = $95,515.99
Profit = PV of Sales Price - Cost price of Asset
= $95,515.99 - $91,700 = $3,815.99
1-b). To find the break-even rate, we need to put the following values in the financial calculator:
N = 4; PV = -91,700; PMT = 0; FV = 145,000;
Press CPT, then I/Y, which gives us 12.14
So, Break-even rate is 12.14%
2). r = [FV/PV]1/n - 1
= [3/1]1/4 - 1 = 1.3161 - 1 = 0.3161, or 31.61%
Consider a firm with a contract to sell an asset for $145,000 four years from now....
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