Nancy is considering forming a 5 year business partnership with Claudia. Nancy believes her portion of the partnership will generate the following profits:
Year Profits Present Value
1 $2,000
2 $4,000
3 $12,000
4 $15,000
5 $18,000
Nancy's appropriate discount rate is 6%. To join the partnership, Nancy needs to invest $30,000. Does the partnership offer a rate of return in excess of 6%?
As the table below indicates, the present value of the partnership is in excess of the $30,000 investment. This implies the partnership offers a rate of return greater than 6%. In this case, Nancy should join the partnership.
Year Profits Present Value
1 $2,000 1,886.79
2 $4,000 3,559.99
3 $12,000 10,075.43
4 $15,000 11,881.41
5 $18,000 13,450.65
TOTAL $40,854.27
You might also like to view...
Which of the following assets is the most liquid in the United States?
A) U.S. Treasury Bonds B) corporate bonds C) U.S. currency D) an antique car
A woman gives her boyfriend a birthday present. The gift could be viewed by the boyfriend as a
a. moral hazard problem. b. screening device. c. signal of how much she cares for him. d. All of the above are correct.
Debt needs to be judged relative to assets because:
A. private investment is always more productive than government investment. B. assets can increase the ability of a country to repay a debt. C. assets are always depreciating. D. all assets provide interest payments to pay the debt.
Assume that Down Slope specializes in producing snow boards and Seven Seas specializes in producing scuba tanks. After trade, Down Slope exports 2,000 snow boards and imports 400 scuba tanks. The terms of trade
A. are 5:1 snow boards to scuba tanks. B. are 1/5:1 snow boards to scuba tanks. C. are 1:5 snow boards to scuba tanks. D. cannot be determined from this information.