The firm in the table below produces denim jeans and each unit of capital represents one sewing machine.The MRP for each of machines 10 through 14 is provided.Each sewing machine delivers a stream of MRPs beginning one year from now,for a total of 2 years.Assume that after 2 years each sewing machine is worth nothing.
TABLE 15-2
-Refer to Table 15-2.If the annual interest rate is 4%,what is the present value of the 11th sewing machine (rounded to the nearest dollar) ? Note that the stream of MRPs begins one year from now and lasts 2 years.
Definitions:
Ordinary Simple Interest
Interest calculated only on the principal amount, not on the interest that accrues over time.
360-Day Year
An artificial accounting period used in finance that simplifies the calculation of interest by assuming each month has 30 days, resulting in a calendar year of 360 days.
Ordinary Simple Interest
Interest calculated on the principal amount of a loan or investment without compounding, based on a 365-day year.
360-Day Year
A simplified accounting method where the year is considered to have 360 days for the calculation of interest and other financial metrics.
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