. In addition to hiring new employees to manage increasing demand for your compa
ID: 1151286 • Letter: #
Question
. In addition to hiring new employees to manage increasing demand for your company’s mowing services, you also need to purchase some new equipment. You’ve identified a new eco-friendly electric riding mower that you think would meet all of your needs. Two years of maintenance are included in the purchase cost of the mower. You’ve estimated maintenance costs for the 3rd year of ownership to be $100. In subsequent years you know that maintenance costs will be higher due to increased wear and tear on the mower, therefore you’ve also estimated that maintenance costs will increase by $50 per year. How much would you need to deposit today, in a savings account that earns 8% interest per year, to pay for the mower’s maintenance cost for the first six years? Question 3 [9 points total]. You’ve just accepted a lucrative consulting contract with a medium
Explanation / Answer
In addition to hiring new employees to manage increasing demand for your company’s mowing services, you also need to purchase some new equipment.
You’ve identified a new eco-friendly electric riding mower that you think would meet all of your needs.
Two years of maintenance are included in the purchase cost of the mower.
You’ve estimated maintenance costs for the 3rd year of ownership to be $100.
In subsequent years you know that maintenance costs will be higher due to increased wear and tear on the mower, therefore you’ve also estimated that maintenance costs will increase by $50 per year. How much would you need to deposit today, in a savings account that earns 8% interest per year, to pay for the mower’s maintenance cost for the first six years?
Maintenance costs for the 3rd year of ownership to be $100
Maintenance costs will increase by $50 per year
How much would you need to deposit today, in a savings account that earns 8% interest per year, to pay for the mower’s maintenance cost for the first six years?
EOY
0
1
2
3
4
5
6
Maintenance Cost
-
-
-
$100
$150
$200
$250
Present worth of the maintenance cost of 3rd, 4th, 5th and 6th year.
PW = 100 (P/F, 8%, 3) + 150 (P/F, 8%, 4) + 200 (P/F, 8%, 5) + 250 (P/F, 8%, 6)
PW = 100 (0.7938) + 150 (0.7350) + 200 (0.6806) + 250 (0.6302)
PW = 483.3
EOY
0
1
2
3
4
5
6
Maintenance Cost
-
-
-
$100
$150
$200
$250
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