Question

The present worth of purchase over 6-year period was $350000. If the costs are known to...

The present worth of purchase over 6-year period was $350000. If the costs are known to have increased geometrically by 7% per year during that time and the company uses an interest rate of 13% per year for investments, what was the cost in year 1? (hint: base amount)

Select one:

a. 118207

b. 56281

c. 215621

d. 193430

e. 75223

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

The correct answer is (e) 75223

Formula for Present worth(PW) of geometrically growing annuity or periodic payment is:

where PW = Present worth = 350,000 , P = First period cost or cost in period 1 that we have to calculate, r = interest rate = 13% = 13/100 = 0.13, g = growth rate = 7% = 7/100 = 0.07 and t = number of time period or number of years as here 1 period is 1 year and so, t = 6

Thus using information from the question and above formula we have :

=> P = 350,000/4.65285679 = 75223(approx)

Therefore, cost in period 1 or First period cost = $75223

Hence, the correct answer is (e) 75223

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
The present worth of purchase over 6-year period was $550000. If the costs are known to...
The present worth of purchase over 6-year period was $550000. If the costs are known to have increased geometrically by 7% per year during that time and the company uses an interest rate of 13% per year for investments, what was the cost in year 1? (hint: base amount)
WHAT ANNUITY OVER A 10-YEAR PERIOD AT 8% INTEREST IS EQUIVALENT TO A PRESENT WORTH OF...
WHAT ANNUITY OVER A 10-YEAR PERIOD AT 8% INTEREST IS EQUIVALENT TO A PRESENT WORTH OF P 100,000.00?
Find the accumulated present value of an investment over a 6 year period if there is...
Find the accumulated present value of an investment over a 6 year period if there is a continuous money flow of $9,000 per year and the interest rate is 1.9% compounded continuously.
Ms. Child is considering the purchase of a new food packaging system. The system costs $221,358....
Ms. Child is considering the purchase of a new food packaging system. The system costs $221,358. Ms. Child plans to borrow one-third of the purchase price from a bank at 4.5% per year compounded annually. The loan will be repaid using equal, annual payments over a 7-year period. The system is expected to last 15 years and have a salvage value of $22,445 at that time. Over the 15 year period, Ms. Child expects to pay $987 per year for...
Ms. Child is considering the purchase of a new food packaging system. The system costs $76342....
Ms. Child is considering the purchase of a new food packaging system. The system costs $76342. Ms. Child plans to borrow one-third of the purchase price from a bank at 4.5% per year compounded annually. The loan will be repaid using equal, annual payments over a 7-year period. The system is expected to last 15 years and have a salvage value of $21725 at that time. Over the 15 year period, Ms. Child expects to pay $1077 per year for...
What is most nearly the present worth of $27,000 due in 6 years if the interest...
What is most nearly the present worth of $27,000 due in 6 years if the interest rate is 13% per year, Compounded semi-annually? Select the correct Option: (a) $4,000 (b) $6,000 (c) $13,000 (d) $24,000
A stream of payments over a 5-year period have a present worth of $100,000. Payments in...
A stream of payments over a 5-year period have a present worth of $100,000. Payments in years 1, 4 and 5 are $15,000, $30,000, and $35,000, respectively. The value in years 2 and 3 must be determined. Year 3 is twice year 2. What are the values of year 2 and year 3’s payments? No Interest. PLEASE INCLUDE A CASH FLOW DIAGRAM or I will not rate. Thank you!
Calculate the present worth of all costs for a newly acquired machine with an initial cost...
Calculate the present worth of all costs for a newly acquired machine with an initial cost of $32,000, no trade-in value, a life of 13 years, and an annual operating cost of $15,000 for the first 4 years, increasing by 10% per year thereafter. Use an interest rate of 10% per year. The present worth of all costs for a newly acquired machine is determined to be $
2. Kermit is considering purchasing a new computer system. The purchase price is $107918. Kermit will...
2. Kermit is considering purchasing a new computer system. The purchase price is $107918. Kermit will borrow one-fourth of the purchase price from a bank at 10 percent per year compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $7937 at that time. Over the 5-year period, Kermit expects to pay a technician $20,000 per year to maintain...
Determine the present Value annuity payments(the same amount each year) of 500$ over a period of...
Determine the present Value annuity payments(the same amount each year) of 500$ over a period of 8 years which will earn 6% during the period. a.$5000 b.$2450 c.$2550 d.$3105
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT