What is the minimum number of years that an investment costing $500,000 must return $65,000 per year at a discount rate of 13 percent in order to be an acceptable investment?
A)8.69 years
B)14.00 years
C)27.51 years
D)An infinite number of years

Question

Quizplus · Accepted Answer

The investment must return at least its cost when discounted at the given rate. The formula for the present value of an annuity (a series of equal annual payments) is PV = PMT * [(1 - (1 + r)^-n) / r], where PV is the present value (initial investment), PMT is the annual payment, r is the discount rate, and n is the number of years. In this case, solving for n with the given values ($500,000 investment, $65,000 annual return, 13% discount rate) would not yield a finite number of years because the annual return does not cover the cost of the investment when discounted at 13%. Therefore, the investment would never be considered acceptable, implying an infinite number of years.

What Is the Minimum Number of Years That an Investment