Homework Answers
ANSWER:
- At the point when an analyst picks a low-loan cost, it implies that he is limiting the future less for example cash later on is nearer in incentive to cash at present and the net present an incentive from that investigation will go up.
- Then again, if the specialist utilizes an extremely high loan fee it implies that he is limiting the future at an exceptionally high rate i.e the estimation of cash at present is a lot higher than the estimation of cash later on and consequently, the net present an incentive from the investigation will decrease.
Let take a model for two periods.
Period 0 (present): Let benefit = income - cost be =100
Period 1 (future): Let benefit = income - cost be =150
We should expect the genuine dicount rate is 10%
Presently, our NB = profit0 + profit1/1+r = 100 + 150/1.1 = 236.36
Presently assume the scientist imagines that loan fee is 8%
NB = 100 + 150/1.08 = 238.88
Presently assume the analyst feels that loan cost is 12%
NB = 100 + 150/1.12 = 233.92
Accordingly, we see that lessening financing cost inceases the net present advantage.
PLEASE UPVOTE.
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