7) In starting a small construction company, a civil engineer inves…
7) In starting a small construction company, a civil engineer invested S135,000 for heavy equipment. His profit the first year was only $25,000, but it increased by 25% each year. How long did it take to recover his investment if he wanted to make a rate of return of 20% a year? (1 mark)
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Technifi Expert’s Answer:
By using the formula for the geometric gradient
From the given information we have:
P = $135,000
A = $25,000
i = 20%
g = 25%
n = ?
By inserting the values in the formula to find n.
If n = 4, the Present Value = $88,688
If n = 5, the Present Value = $113,217
If n = 7, the Present Value = $138,767.20
Hence at n=6 the investment of $135,000 will be recovered. Therefore, the answers 6years
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