Thread: Determining Present Worth w/ Interest

A bakery is thinking of purchasing a small delivery truck that has a first cost of $18,000 and its to be kept in service for 6 years, at which time the salvage value is expected to be $2500. Maintenance and operating costs are estimated at $2500 the first year and will increase at a rate of $200 per year. Determine the present worth of this vehicle, using an interest rate of 12 percent.

My attempt:

Finding the regular annuity for such an arithmetic series,



Finding the present worth of maintenance costs given such an annuity, (NOTE: A here is A'' found previously)



Finding the present worth of the future salvage value,



Thus the overall present worth of the vehicle is,



Is this correct?

$28797.97 is correct !

Originally Posted by jegues

.....that has a first cost of $18,000...

Can you explain what that means?
This style of problem usually states a purchase price, then the positive and negative
subsequent flows resulting from this purchase; then, is the purchase price advantageous?

Originally Posted by Wilmer

Can you explain what that means?
This style of problem usually states a purchase price, then the positive and negative
subsequent flows resulting from this purchase; then, is the purchase price advantageous?

I'm assuming it means the purchase price.

Originally Posted by jegues

I'm assuming it means the purchase price.

Ok; then 28797.97 is definitely correct.
Can you calculate this:
if $K is the savings each year due to the purchase, what is K in order to break even ?