Consider cheese makers decision whether to continue to age

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Reference no: EM131012039

The TillamookCounty Creamery Association manufactures Tillamook Cheddar Cheese. It markets this cheese in four varieties: aged 2 months, 9 months, 15 months, and 2 years. At the shop in the dairy, it sells 2 pounds of each variety for the following prices: $7.00, $10.50, $10.95, and $12.50, respectively. Consider the cheese maker’s decision whether to continue to age a particular 2-pound block of cheese. At 2 months, he can either sell the cheese immediately or let it age further. If he sells it now, he will receive $7.00 immediately. If he ages the cheese, he must give up the $7.00 today to receive a higher amount in the future. What is the IRR (expressed in percent per month) of the investment of giving up $70.00 today by choosing to store 20 pounds of cheese that is currently 2 months old and instead selling 10 pounds of this cheese when it has aged 9 months, 6 pounds when it has aged 15 months, and the remaining 4 pounds when it has aged 2 years?

The IRR is per month.................................. (YOUR ANSWER SHOULD BE IN TWO DECIMAL PLACES)

Reference no: EM131012039

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