Question

The present worth of $50 000 now, $10 000 per year in years 1 through 15, and $20 000 per year in years 16 infinitly at 5% per year is closest to:

Answer 1

Solution:-

This is a question of infinite life period. So, we need to claculate Capitalized cost.

Capitalized cost is the present worth of a constant annual cost with infinite life period.

Capitalized cost = -50,000 - 10,000 (P / A, 5%,15) - 20,000/0.05 (P /F, 5%,15)

                         = -50,000 - 10,000 (10.380) - 400,000 (0.481)

                         = -50,000 - 1,03,800 - 1,92,400

                         = -$ 3,46,200

** values 10.380 and 0.481 are given in present value table.