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

The correct answer is $394,891.

Step-by-step 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(
`(1 - (1)/((1+r)^(t) ) )/(r)`)

$3,500,000 = P (
`(1 - (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.