Question

Elizabeth just bought a new riding lawn mower. Maintenance cost are estimated to be $15 for the first year and increase $15 per year every year thereafter. At 8% interest how much money should she set aside when she buys the mower to pay for maintenance for the next 10 years? Round answer to the nearest whole dollar.

Answer 1

Here, A1 = 15,       G = 15,      i = 8%,     n = 10

Present Worth = [A1 + G(A/ G, i, n)] (P/A, i, n)

                       = [15 + 15(A/ G, 8%, 10)] (P/A, 8%, 10)

                      = [15 + 15(3.8713)] (6.7101)

                      = 73.0695(6.7101)

                      = $490

Thus, she should set aside $490 when she buys the mower to pay for maintenance for the next 10 years.