Two Economics Questions A contest for college students to build robots that can

Question

Two Economics Questions

A contest for college students to build robots that can perform autonomous tasks without human intervention. VT won the $7000 first prize over 21 other universities. If the team spent $2000 for parts (at time 0) and the project took 2 years, what annual rate of return did the team make?

A company sold its business for $3.1 billion. If income from product sales is $2 billion per year and net profit is 20% of sales, what rate of return will the buyer make over a 10 year planning period.

Explanation / Answer

1. Let annual rate of return= r

7000 = 2000*(1+r)^2

r= 87.08%

2. Let annual rate of return= r

profit = 20%*2 = 0.4

3.1 = 0.4/(1+r) + 0.4/(1+r)^2 + 0.4/(1+r)^3 + 0.4/(1+r)^4......0.4/(1+r)^10

r= 4.92%

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