5) A device is purchased for $10,000. It yields a $2,000 yearly net profit for first 4 years and $1,000 yearly net profit after that. The device is sold after 8 years. What is its mininmum price to break even with i=10%/vr?

5) A device is purchased for $10,000. It yields a $2,000 yearly net profit for first 4 years and $1,000 yearly net profit after that. The device is sold after 8 years. What is its mininmum price to break even with i=10%/vr?

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter1: Understanding Personal Finance

Section1.4: Perform Time Value Of Money Calculations

Problem 3CC

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Question

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don't use excel also can you show me maths solving with equation by hand please....

5) A device is purchased for $10,000. It yields a $2,000 yearly net profit for first 4
years and $1,000 yearly net profit after that. The device is sold after 8 years. What
is its minimum price to break even with i=10%/yr?

Expert Solution

Step 1

2000 for 4 years

1000 for 4 years

Required rate =10%

Step 2

Present value FACTOR =1-(1+r)^-n/r

Present value FACTOR =1-(1.1)^-4/0.1

present value FACTOR =3.17

Present value of 2000 YEARLY =2000×3.17

Present value of 2000=6340

Than 1000 after wards

Present value of 1000=3.17×1000/(1.1)⁴

Present value of 1000=2165.15

Total present value =6340+2165.15=8505.15

Total present value =8505.15

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