The Manufacture of Folic Acid Is a Competitive Business

question 41

Multiple Choice

The manufacture of folic acid is a competitive business. A new plant costs $100,000 and lasts for three years. The cash flow from the plant is as follows: Year-1: +43,300, Year-2:
$43,300 and Year-3 = 58,300. (Assume there is no tax.) If the discount rate is 20%, what is the value of the plant at the end of year-2?

• A) $48,600
• B) $-51,600
• C) Zero
• D) None of the above

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Definitions:

Deferred Payment Plan

A payment arrangement that allows payment to be postponed for a certain period, often used in loans and purchase agreements.

Finance Charge

The total cost of borrowing, including interest and any other fees, applied to credit or loan accounts.

Home Improvement Loan

A type of loan specifically designed to finance repairs, renovations, or improvements to a home.

APR

Annual Percentage Rate; the annual rate charged for borrowing or earned through an investment, inclusive of any fees or additional costs.