Question

3.36 The optical products division of Panasonic is planning a $3.5 million building expansion for manufacturing its powerful Lumix DMC digital zoom camera. If the company uses an interest rate of 20% per year compounded quarterly for all new investments, what is the uniform amount of revenue per quarter the company must realize to re-cover its investment in 3 years?

Answer 1

Time = 3 x 4 = 12 quarters

Initial cost = 3.5 million

Interest rate per quarter = 20%/4 = 5%

Required amount of revenues per quarter = A

Hence we have

-3,500,000 + A(P/A, 5%, 12) = 0

A = 3500000/8.863252

= 394,889

This is the required uniform amount per quarter.