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Project P requires an investment of $4000$ at time $0$. The investment pays $2000$ at time $1$ and $4000$ at time $2$. Project Q requires an investment of X at time 2. The investment pays $2000$ at time $0$ and $4000$ at time $1$. The net present values of the $2$ projects are equal at an investment rate of $10$%. Calculate X.

$4000+\frac{2000}{1.10}+\frac{4000}{1.10^2}=2000+\frac{4000}{1.10}+\frac{X}{1.10^2}$

$\therefore X=4220$

But the answer is $5460$

Tosh
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1 Answers1

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Be careful of whether you have to invest or whether you are paid.

Solve for $x$:

$$-4000+\frac{2000}{1.1}+\frac{4000}{1.1^2}=2000+\frac{4000}{1.1}-\frac{x}{1.1^2}$$

Siong Thye Goh
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