The firm in the table below produces denim jeans and each unit of capital represents one sewing machine.The MRP for each of machines 10 through 14 is provided.Each sewing machine delivers a stream of MRPs beginning one year from now,for a total of 2 years.Assume that after 2 years each sewing machine is worth nothing.
TABLE 15-2
-Refer to Table 15-2.If the interest rate is 4%,what is the present value of the 14th sewing machine (rounded to the nearest dollar)? Note that the stream of MRPs begins one year from now and lasts for 2 years.

Question

The firm in the table below produces denim jeans and each unit of capital represents one sewing machine.The MRP for each of machines 10 through 14 is provided.Each sewing machine delivers a stream of MRPs beginning one year from now,for a total of 2 years.Assume that after 2 years each sewing machine is worth nothing.
  TABLE 15-2
-Refer to Table 15-2.If the interest rate is 4%,what is the present value of the 14th sewing machine (rounded to the nearest dollar)? Note that the stream of MRPs begins one year from now and lasts for 2 years.

Quizplus · Accepted Answer

The present value of the 14th sewing machine is calculated by discounting the future marginal revenue products (MRPs) at the given interest rate of 4%. The MRPs are received over two years, so the present value is the sum of the MRPs for each year, each discounted back to the present value using the formula PV = MRP / (1 + r)^n, where r is the interest rate and n is the year.

The Firm in the Table Below Produces Denim Jeans and Each