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The Gentle Warming Company is purchasing a new cooling system. To pay for the system, the...

The Gentle Warming Company is purchasing a new cooling system. To pay for the system, the company agrees to make 12 installment payments of $7741 per year, beginning at the end of year 1. The company also has to pay a system fee of $1340 that will begin at the end of year 1 and decrease by $176 per year until the system is paid off. How much should the company set aside today to pay for the cooling system if the bank pays 3% per year compounded annually?

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Answer #1

Present value of total cost is calculated in excel and screen shot provided below:

Present value of total cost is $82,327.75. So, the company set aside $82,327.75 today to pay for the cooling system.

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