Question
29Suppose there is an asset that will earn (net of all expenses) $100,000 at the end of each year for three years.At the end of
29Suppose there is an asset that will earn (net of all expenses) $100,000 at the end of each year for three years.At the end of three years, this asset will have no value.
a.At 6% rate of interest, what is the market value of this asset today? __________
b.Suppose that you discover a way to extend the life of the asset.Now it will earn $100,000 at the end of each year for four years.At the end of the fourth year, this asset will have no value.At 6% rate of interest, what is the present value of the extra year? ________________
c.To extend the life of the asset in the previous question will require you to incur a cost.If the present value of the cost is $77,000, how much would you gain/lose by making the investment to extend the asset life? _______________
d.How much would you gain or lose by making the investment in the previous question if the interest rate was 7%?________________
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