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Mrs Glam uses a cost of capital of 10%
The expansion is to have a life of 4 years.
a cost of $2,000 to increase the profile of the shop in the area. It is estimated that revenue will increase by 10% from its current level of $50,000 per year. The contribution earned on revenue is 30%.
Ans given is Present value of the incremental contribution: $50,000 × 0.08 × 0.3 × 3.170 = $3,804
I wasn;t able to catch the 0.08 figure in the answer key,
can someone help , thank uuWhere did you find this question?
I ask because assuming that you have copied it correctly then I think there is a typing error in your book. The 0.08 would be correct if the question had said that the revenue was to increase by 8%, but since the question said that it increased by 10% then the answer should have multiplied by 0.1 and not by 0.08.
I am also thinking the same. I have found this qustn on the section b of kaplan kit Section 5 PRACTICE EXAM QUESTIONS first question (22-23 kit). Thank uu for the response
I do not have the Kaplan Kit (only the BPP Kit) but it does seem to be an error. Have you checked the errata sheet on their website?
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