Compute the present value of Smyth Industries' profits if it remains a duopolist in this market when the interest rate is 5 percent.
A)$100 million.
B)$200 million.
C)$210 million.
D)$1.05 billion.

Question

Quizplus · Accepted Answer

The present value of Smyth Industries' profits can be calculated using the formula: present value = future value / (1 + interest rate)^n, where n is the number of years. Assuming Smyth Industries' profits remain constant at $200 million per year, the present value would be $4 billion over a 20-year period (200 million x 20 years). Using the formula with an interest rate of 5% and a 20-year period, the present value would be approximately $210 million, which corresponds to option C.

Compute the Present Value of Smyth Industries' Profits If It