Question

EMAAR Co. wants to sell an electrical generator for AED 165,000 in 2024. The price of this generator in the market today is AED 94,000 (according to GE company who is the producer of this generator). If the discount rate on this generator is 9.5 percent per year.

1. Do you think the firm will make a profit if they sell this generator? (3 marks)

Answer 1

If they sell this generator, the firm will make profit of "20,769.036". A further solution is provided below.

Step-by-step explanation:

According to the question,

The present value of generator will be:

=
`(FV)/((1+r)^n)`

=
`(165000)/((1+0.095)^4)`

=
`(165000)/((1.095)^4)`

=
`(165000)/(1.43767)`

=
`114,769.036`

hence,

The profit will be:

=
`114,796.036-94000`

=
`20,769.036`