- The following table shows the stream of income produced by
several different assets. In each case, , , and are the
payments made by the asset at the end of years 1, 2, and 3.
Asset i Present ValueA 8% $1000 $0 $0 —
B 7% 0 0 5000 —
C 9% 200 0 200 —
D 10% 50 40 60 —
a. For each asset, compute the asset’s present value. (Note
that the market interest rate, i, is not the same in each
situation.)
b. In each case, what is the most a firm would be prepared
to pay to acquire the asset?
c. Suppose the listed purchase price for an asset were less
than its present value. What would you expect to
observe?
12. CopyCentral provides commercial photocopying services. This
profit-maximizing firm purchases copy machines that each have a
lifespan of three years, after which they have no value. A machine
P 1 P 2 P 3P 1 P 2 P 3