Continuous Compounding

question 34

Essay

Continuous Compounding. Abby Lockheart, a quality control supervisor for Intensive care, Inc., is concerned about an increase in distribution costs per unit from $3 to $3.27 over the last three years. Lockheart feels that setting up a new direct-sales distribution network at a cost of $3.56 per unit may soon be desirable.
A. Calculate the unit cost growth rate using the constant rate of change model with continuous compounding.
B. Forecast when unit distribution costs will exceed the current cost of direct-sales distribution.

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Definitions:

Future Goods

Futures goods are items that are to be manufactured, produced, or acquired by the seller after the sale has been made.

Present Sale

A transaction in which the transfer of ownership of goods from the seller to the buyer occurs immediately or within a very short period following the agreement.

Subject

In various contexts, it refers to an individual or entity being discussed, analyzed, or governed.

Lease

A contractual agreement in which a property owner allows a tenant the use of the property for a specified period of time in exchange for payment.