big bonus in the future would not be the same or beneficial than it would today. Earning the interest is more high valuable today than the future. Every period of time the value of the money changes. Receiving such amount can have potential gain on interest today depending how long. As for Aljazeera club the best thing is to give the full amount today and smaller payments later. By that they wouldn’t lose any big amount in the future depending on the interest rate too. Question 2 (6 marks) Al-khaznah Co. wants to sell an electrical generator for AED 165000 in 2024. The price of this generator in market today is $94000 ( according to GE company who is the producer of this generator ). If the discount rate on this generator is 13 percent per year. Do you think the firm will make a profit if they sell this generator? What is the rate that will make the firm breakeven? Note: Profit = Revenue -cost 1
Fv = Pv ( 1+r)t = 94000(1.13)4 =135632.318 0 1 2 3 4 CF1 CF2 CF3 CF4 CF 94000 The amount is less than they wanted to sell. They won’t make enough profit. CPT= -258996 Question 3 (10 marks) Your uncle Abdallah is celebrating his 33 th birthday today and wants to start saving for his retirement at the age of 63. He wants to be able to withdraw AED 100,000 from his saving account on each birthday for 20 years following his retirement. The first withdraw will be on his 64 th birthday. Your uncle intends to invest his money in a local bank in Abu Dhabi that offers 7%
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- Spring '20
- uncle Abdallah, Aljazeera Club, uncle’s employer