Homework 10 Solution

Homework 10 Solution - Homework 10 Solution 1 ACME Widgets...

Info icon This preview shows pages 1–2. Sign up to view the full content.

View Full Document Right Arrow Icon
Homework 10 Solution 1. ACME Widgets has just completed its new factory in Toluca, Mexico. During their first month of operation, they expect to make 10,000 widgets. That amount is expected to rise by 1500 widgets per month until the plant reaches its full capacity during Month 12. If ACME makes a profit of $35 per widget and their time value of money is 12% per year compounded monthly, what is the value of their profits at the end of the factory’s first 12 months of operation? During Month 1, ACME makes 10,000 $35=$350,000. That amount rises by 1500 $35=$52,500 in each of the next 11 months (Months 2 through 12). This is an arithmetic gradient series with an equal- payment amount of $350,000 per month and a gradient of $52,500 per month. If we assume the 12% per year is the nominal rate (which is the standard assumption) then the interest rate per month is i = r / m = 12% / 12 = 1% per month Since we’ve been given monthly cash flows, we can use this effective monthly interest rate directly: 12.6825 68.2503 F $350,000 F| A,1%,12 $52,500 F| G,1%,12 $8,022,020 2.
Image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full Document Right Arrow Icon
Image of page 2
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern