Question
A firm spends $20,000 per year for supplies. The supplies are consumed uniformly and continuously during the year. a) What is the discrete cash flow
A firm spends $20,000 per year for supplies. The supplies are consumed uniformly and continuously during the year.
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a) What is the discrete cash flow equivalent at the beginning of the year for the supply cost if the firms time value of money is equivalent to 10% compounded continuously?
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b) How would your answer to part a) change if the firms interest rate was 10% compounded quarterly?
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c) Consider a uniform series of discrete cash flows that occur at the beginning of every 6-month period, which is equivalent to the supply costs of this firm over 5 years. Calculate the size of these cash flows considering an interest rate of 10% compounded continuously.
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