Table 9.2
$$\begin{array} { | l c | }
\hline \text { Cost of machine } & \$ 300,000 \
\hline \text { Arnual autput from mechine } & \$ 35,000 \
\hline \text { Arnual interett rate on loans } & 9 \% \
\hline
\end{array}$$
-Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what is the firm's profit from the investment?
A) $25,500
B) $35,000
C) $8,000
D) $0
E) $6,525

Question

Table 9.2
 $$\begin{array} { | l c | } 
\hline \text { Cost of machine } & \$ 300,000 \
\hline \text { Arnual autput from mechine } & \$ 35,000 \
\hline \text { Arnual interett rate on loans } & 9 \% \
\hline
\end{array}$$
-Refer to Table 9.2. If a firm purchases the machine by taking out a one-year loan, what is the firm's profit from the investment?
A) $25,500
B) $35,000
C) $8,000
D) $0
E) $6,525

Quizplus · Accepted Answer

The profit from the investment can be calculated as follows:
Profit = Annual output - Annual loan payments - Annual interest payments
Annual loan payments can be found using the present value formula: 
PV = PMT/(1+r)^n 
where PV is the present value (cost of machine), PMT is the annual loan payment, r is the annual interest rate, and n is the number of years (1 in this case). 
Rearranging for PMT, we get: 
PMT = PV*r/(1-(1+r)^-n) 
Substituting the values, we get: 
PMT = 300,000 * 0.09 / (1 - (1 + 0.09)^-1) = $29,700 
So, the annual loan payment is $29,700. 
Now, we can calculate the profit: 
Profit = 35,000 - 29,700 - (300,000 * 0.09) = $8,000 
Therefore, the firm's profit from the investment is $8,000.

Table 92 -Refer to Table 9