Chan Has Been in the Chemical Industry for the Past

question 105

Essay

Chan has been in the chemical industry for the past 22 years.Current employment total is 65 workers, and the current economic situation (inflation of 4 percent, nominal discount rate) has forced the company to close its doors.Chan however, must continue to pay health care costs for the next four years at a cost of $2,400 per worker, at an increasing rate of 3 percent above inflation.A consultant is called in to find the present value of this obligation.

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Definitions:

Investment Center

A business unit within a company that is responsible for its own revenues, expenses, and asset investments, with its performance measured by its ability to generate income relative to its assets.

Minimum Required Return

The lowest acceptable return on an investment, based on risk tolerance and financial goals.

Residual Income

The income that exceeds the minimum required return on investment or capital employed; often used as a performance measure.

Return On Investment

A measure of the profitability of an investment, calculated as the net profit from the investment divided by its initial cost.