Answered: rest rate earned on money

Business

Finance

rest rate earned on money

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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Concept explainers

Production Budget

A budget can be defined as a financial plan designed by an undertaking for a definite period in the future that can contribute towards enhancing the financial success of the business undertaking. It is used to estimate the revenue and expenses. The budget generally takes into account both current and future income and expenses.

Question

A machine cost P20,000 today and has an estimated scrap value of P2,000 after 8 years. Inflation is 2% per year. The effective annual interest rate earned on money invested is 8%. How much money needs to be set aside each year to replace the machine with an identical model 8 years from now?

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