4. Your company plans t pase o 9oy bank offers an interest rate of 3.5% annually

Question

4. Your company plans t pase o 9oy bank offers an interest rate of 3.5% annually. a. Which equation should be used to solve the problem (name and number)? b. What total amount of money must be invested today at the offered interest rate t have $550,000 available six years in the future? c. How many dollars of the total $550,000 is interest? 5. Your company plans to purchase a new front loader for $375,000 and use it for ten years. After ten years, its estimated salvage value will be $65,000. The annual interest rate is 5.5%. a. What is the annual cost of acquiring the front loader? b. What is the annual return based on selling the loader after ten years? c. What is the contractor's annual cost of owning the loader? of equipment which she expects to complete $44,000 of work A contractor buys a piece each year over the next five years. What is the present worth value of that piece of equipment at an interest rate of 3.5%? 6. xeroise (1)rtA F1 11 12 )Backspace 0 9 Insert

Explanation / Answer

Firstly calculate the PVIFA = Present value of Interest factor annuity = [ 1 - (1+r)-n ] / r

= [ 1 - (1.055)-10 ] / 0.055 = 7.53762583

Question - a

Annual cost of aquiring the front loader = Initial Investment / PVIF

= 375000 / 7.53762583 = 49750

Question - b

Annual return based on salvage value = [ Salvage value * (1+r)-n ] / PVIFA

= [ 65000 * (1.055)-10 ] / 7.53762583 = 5048

Question - c

Annual cost to the contractor = 49750 - 5048 = 44702

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