The annual maintenance cost for your company\'s computer networking infrastructu

Q: The annual maintenance cost for your company's computer networking infrastructu

Solution- (a) $ 30,416.32 25000*(1+4%)^5 (b) $ 35,260.85 25000*(1+4%)^5*(1+3%)^5 (c) $ 20,700.84 30416.32*(1/1+8%)^5 (d) $ 23,997.94 35260.85*(1/1+8%)^5 (a) $ 30,416.32 25000*(1+4%)^5 (b) $ 35,260.85 25000*(1+4%)^5*(1+3%)^5 (c) $ 20,700.84 30416.32*(1/1+8%)^5 (d) $ 23,997.94 35260.85*(1/1+8%)^5

ID: 2775090 • Letter: T

Question

The annual maintenance cost for your company's computer networking infrastructure is $25,000 for the first year. This cost is expected to increase at the rate of 4% per year. What is the annual operating cost in the fifth year of operation expressed in terms of current dollars? If the estimated average annual inflation rate over the next five years is 3%, express the fifth-year operating cost in terms of constant dollars (i.e., in terms of present dollars). If the nominal discount rate is 8%, use the results of (a) to calculate the present value of the fifth-year operating cost. If the nominal discount rate is 8%, use the results of (b) to calculate the present value of the fifth-year operating cost.

Explanation / Answer

Solution-

(a)

$ 30,416.32

25000*(1+4%)^5

(b)

$ 35,260.85

25000*(1+4%)^5*(1+3%)^5

(c)

$ 20,700.84

30416.32*(1/1+8%)^5

(d)

$ 23,997.94

35260.85*(1/1+8%)^5