Question

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.

Answer 1

present worth = $7380

Step-by-step 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 ×
`(1-((1+g)/(1+i))^t)/(1-g)` ......................1

put here value and we get

present worth = $23,000 ×
`(1-((1+0.02)/(1+0.10))^5)/(1-0.02)`

present worth = $23,000 × 0.32087

present worth = $7380