Question

The optical products division of Panasonic is planning a $3.5 million building expansion for manufacturing its powerful Lumix DMC digital zoom camera. If the company uses an interest rate of 20% per year compounded quarterly for all new investments, what is the uniform amount of revenue per quarter the company must realize to recover its investment in 3 years?

Answer 1

Answer:

The correct answer is $394,891.

Explanation:

According to the scenario, the given data are as follows:

Future value (FV) = $3,500,000

Time period = 3 years

Time period (quarterly) (t) = 12

Interest rate = 20% annually

Interest rate ( quarterly) (r) = 5% = 0.05

So, we can calculate the present value by using following formula:

FV = P($\frac{1 - \frac{1}{(1+r)^{t} } }{r}$)

$3,500,000 = P ( $\frac{1 - \frac{1}{(1+.05)^{12} } }{.05}$ )

So, after solving it we get,

P = $394,891

Hence, the uniform amount of revenue per quarter the company must realize to recover its investment is $394,891.