Suppose You Wish to Purchase a Factory That Will Yield

question 191

Short Answer

Suppose you wish to purchase a factory that will yield an annual return of $12,000 for 12 years,after which the factory will have no value.You want to earn 8.25% annually on your investment and also set up a sinking fund to replace the purchase price.If money is placed in the fund at the end of each year and earns 4.2% compounded annually,how much should you pay for the factory?

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Definitions:

Statement of Net Position

A financial statement detailing an entity's assets, liabilities, and net position at a particular point in time, providing a snapshot of financial health.

Tax Abatement

A reduction or elimination of taxes granted by governments to encourage certain activities, such as investments in property development.

Disclosed

Information that has been revealed or made available publicly, often related to financial or operational details.

Commitments

Commitments are potential liabilities or obligations that a company has legally agreed to fulfill in the future, such as contracts for goods or services that have not yet been delivered or paid for.