Question

Calculate CC =? 10% per year. Invest $1,000,000 NOW Invest another $1,000,000 5 years from now...

Calculate CC =? 10% per year.

Invest $1,000,000 NOW

Invest another $1,000,000 5 years from now

Spend $10,000 per year at the end of each year, forever.

Spend $100,000 every 5 years forever.

Please show work.

Homework Answers

Answer #1

Capitalized Cost = -1,000,000 - 1,000,000(P/F, 10%, 5) - 10,000 / 0.10 - [100,000(A/F, 10%, 5)] / 0.10

                           = -1,000,000 - 1,000,000(0.6209) - 10,000 / 0.10 - [100,000(0.1638)] / 0.10

                           = -1,000,000 - 620,900 - 100,000 - 163,800

                           = -$1,884,700

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