Results 1 to 5 of 5

Math Help - Determining Present Worth w/ Interest

  1. #1
    Member
    Joined
    Jan 2010
    Posts
    144

    Question 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,

    A^{''} = 2500 + 200(\frac{A}{G}, 12\%, 6) = \$2934.41

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

    P = 2934.41(\frac{A}{P},12\%,6) = \$12064.56

    Finding the present worth of the future salvage value,

    P = 2500(\frac{P}{F},12\%,6) = $1266.58

    Thus the overall present worth of the vehicle is,

    \$18000 + \$12064.56 - \$1266.58 = \$28797.98

    Is this correct?
    Follow Math Help Forum on Facebook and Google+

  2. #2
    Senior Member MaxJasper's Avatar
    Joined
    Aug 2012
    From
    Canada
    Posts
    482
    Thanks
    54

    Re: Determining Present Worth w/ Interest

    $28797.97 is correct !
    Follow Math Help Forum on Facebook and Google+

  3. #3
    MHF Contributor
    Joined
    Dec 2007
    From
    Ottawa, Canada
    Posts
    3,100
    Thanks
    67

    Re: Determining Present Worth w/ Interest

    Quote Originally Posted by jegues View Post
    .....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?
    Follow Math Help Forum on Facebook and Google+

  4. #4
    Member
    Joined
    Jan 2010
    Posts
    144

    Re: Determining Present Worth w/ Interest

    Quote Originally Posted by Wilmer View Post
    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.
    Follow Math Help Forum on Facebook and Google+

  5. #5
    MHF Contributor
    Joined
    Dec 2007
    From
    Ottawa, Canada
    Posts
    3,100
    Thanks
    67

    Re: Determining Present Worth w/ Interest

    Quote Originally Posted by jegues View Post
    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 ?
    Follow Math Help Forum on Facebook and Google+

Similar Math Help Forum Discussions

  1. Finding present-worth
    Posted in the Business Math Forum
    Replies: 1
    Last Post: April 9th 2010, 08:25 AM
  2. Net Present worth Problem
    Posted in the Business Math Forum
    Replies: 0
    Last Post: October 20th 2009, 07:17 PM
  3. present worth
    Posted in the Business Math Forum
    Replies: 1
    Last Post: February 21st 2009, 12:13 AM
  4. Present worth analysis
    Posted in the Business Math Forum
    Replies: 3
    Last Post: May 10th 2008, 05:13 PM
  5. present worth
    Posted in the Business Math Forum
    Replies: 3
    Last Post: April 27th 2008, 07:33 PM

Search Tags


/mathhelpforum @mathhelpforum