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The cost for manufacturing a component used in intelligent interface converters was $23,000 the first year. The company expects the cost to increase by 2% each year. Calculate the present worth of this cost over a fiveyear period at an interest rate of 10% per year.

Respuesta :

Answer:

present worth = $7380

Explanation:

given data

initial cash flow = $23,000

geometric gradient = 2%

interest rate i = 10% per year

time period = 5 year

solution

we get here present worth  cost that is

present worth = initial cash flow  × [tex]\frac{1-(\frac{1+g}{1+i})^t}{1-g}[/tex]    ......................1

put here value and we get

present worth =  $23,000  × [tex]\frac{1-(\frac{1+0.02}{1+0.10})^5}{1-0.02}[/tex]    

present worth = $23,000  × 0.32087

present worth = $7380

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