Financial equivalent of the balance, Financial Management

The Federal Minister for the Environment is worried about the Greenhouse Effect, one outcome of which would be that Adelaide would have a subtropical climate by the year 2015. This would mean that Adelaide would be suited to growing bananas using a new cloned variety that can produce normal yields at the end of the second year of planting.

Equally the Federal Treasurer is worried about balancing the 2011 financial year budget. The two ministers have thus "cooked up" a plan to sell Edinburgh airfield (valued at $200 million) to a Queensland banana growing consortium. After intense negotiations the consortium has agreed to a down-payment (due at the beginning of 2011) of $50 million with the financial equivalent of the balance to be paid in equal annual instalments over 10 years with the first of these instalments due at the end of 2020.

The varieties of bananas that are currently grown are expected in 2020 to have a wholesale price of $40 for a box weighing about 20 kilograms. If the Edinburgh land is expected to produce 1,250,000 boxes of new variety bananas per annum, by how much would the consortium need to increase the wholesale price per kilogram of its bananas in order to pay the debt to the government if interest is j2 = 10% p.a.?

 

Posted Date: 2/22/2013 5:08:42 AM | Location : United States







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