Kunkle Company wishes to earn 20% annually on its investments. If it makes an investment that equals or exceeds that rate, it considers it a success. Assume that it invests $2 million and gets $500,000 in return at the end of each year fox X years. What is the minimum value of X for which it will consider the investment a success? Assume that it can't invest for fractional parts of a year.
A)4 years.
B)6 years.
C)7 years.
D)9 years.The investment is successful when the present value of the ordinary annuity = $2 million.This is when the PV factor (from Table 4) is at least 4.0, so that multiplied by $500,000; it is at least $2 million.In Table 4, at i=20%, the factor passes the 4.0 level in year 9.

Question

Quizplus · Accepted Answer

The investment is considered successful when the present value of the ordinary annuity is at least $2 million. This occurs when the PV factor at 20% interest rate is at least 4.0, which happens in year 9 according to Table 4. Therefore, the minimum value of X for which the investment is considered a success is 9 years, making option D the correct answer.

Kunkle Company Wishes to Earn 20% Annually on Its Investments