Sony is thinking about investing in a new project.Suppose that the project costs $10 million and will yield the company $20 million in 10 years.If the interest rate is five per cent, what is the present value of the yield in 10 years?
A)$9.5 million
B)$10.5 million
C)$12.3 million
D)$16.3 million

Question

Quizplus · Accepted Answer

To calculate the present value of the yield, we need to use the formula

PV = FV / (1 + r)^n

where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods.

In this case, FV = $20 million, r = 5%, and n = 10 years.

Plugging these values into the formula, we get:

PV = $20 million / (1 + 0.05)^10 
PV = $20 million / 1.62889 
PV = $12.28 million

Therefore, the present value of the yield in 10 years is approximately $12.28 million. Therefore, the best choice is (C).

Sony Is Thinking About Investing in a New Project