A mechanical engineer who recently graduated with a master’s degree is contempla

Question

A mechanical engineer who recently graduated with a master’s degree is contemplating starting his own commercial heating and cooling company. He can purchase a Web Page design package aimed at delivering information only for $1,000 per year. If his business is successful, he will purchase a more elaborate e-commerce package costing $4,000 per year. If the engineer purchase the less expensive package now (beginning-of-year payments) and he purchases the e-commerce package 4 years from now (also beginning-of-year payments) what is the equivalent annual worth of costs for the website for a 10-year period (years 1 through 10 at an interest rate of 10% per year?

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Explanation / Answer

FV of less expensive package at the end of 10th year = (1000*1.1*(1.1^4-1)/0.1)*1.1^6 = $ 9044 FV of expensive package at the end of 10th year = 4000*1.1(1.1^6-1)/0.1 = $33948.68 Total FV = 9044+33948.68 = $ 42992.68 This should be equal to FV of equivalent annual worth a. => Total FV = 42992.68 = a*1.1(1.1^10-1)/0.1 = 2452.6 ($) (ANSWER)

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