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You will invest in a project that is planned to last 8 years. The first payment...

You will invest in a project that is planned to last 8 years. The first payment is today and the last payment is 8 years from today. Of each payment, 40,000 will be used for salaries and the balance for equipment and facilities costs. The equipment and facilities cost starts at 26,000 and drops by 3000 per year until the cost is 14,000. At this point, the cost stays constant at 14,000 for the remainder of the project. If interest is 7%, what is the total future worth of all payments at the end of the eight years.

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Answer #1

i=7%= 0.07

Year Invest in salary Investment in equipment & Facility Total Investment FV at the end of 8th year
1 40000 26000 66000 113400.29 66000*(1+0.07)^8
2 40000 23000 63000 101164.23 63000*(1+0.07)^7
3 40000 20000 60000 90043.82 60000*(1+0.07)^6
4 40000 17000 57000 79945.45 57000*(1+0.07)^5
5 40000 14000 54000 -239756.92 FV(7%,4,54000)
6 40000 14000 54000
7 40000 14000 54000
8 40000 14000 54000
Total FV 6,24,310.71 Adding all values
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