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ECONOMIC MANANGEMENT QUESTIONS AND WELL ILLUSTRATED ANSWERS 2024
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6
January 2024
2023/2024
A+
Question 1:
To figure out the maximum amount we should pay in this situation, here below is the formula to use:
PV = CF / (1 + r)n
Where PV is the present value, CF is the cash flow, r is the opportunity cost of using funds, and n is the number of periods.
In this case, CF = $250,000, r = 8%, and n = 5. Therefore, the present value of the asset is:
PV = $250,000 / (1 + 0.08)5 = $250,000 / 1.469 = $170,087.3
Therefore, the maximum amount that an individual should pay for the asset is $170,...
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