What Is the Equal Annual Annuity for Scorch & Burn

question 13

Multiple Choice

What is the equal annual annuity for Scorch & Burn Fire Extinguishers if their cost of capital is 8% and the initial investment is $75,000 (rounded) ?
$$\begin{array} { | c | c | } \hline \text { Year } & \text { Cash Inflows } \\\hline 1 & \$ 25,000 \\\hline 2 & \$ 25,000 \\\hline 3 & \$ 45,000 \\\hline\end{array}$$

• A)$5,304
• B)$6,271
• C)$2,058
• D)$4,157

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Definitions:

Short-Run Aggregate-Supply Curve

Depicts the relationship between the price level and the quantity of goods and services that firms are willing to produce, taking some inputs as fixed.

Short-Run Phillips Curve

A graphical representation that shows the inverse relationship between short-term inflation and unemployment rates, suggesting a trade-off.

Inflation Rate

The percentage increase in the general level of prices for goods and services in an economy over a period of time, often measured annually.

Natural Rate

Often referred to as the natural rate of unemployment, it is the level of unemployment consistent with a stable rate of inflation.