Return to question 10 Cisco, Inc., has a proposal from the Engineering Planning

Question

Return to question 10 Cisco, Inc., has a proposal from the Engineering Planning Division to invest Cisco retained earnings in the design, testing, and development of the next generation of smart grids useful in the Internet of Things (loT) environment. The initial Investment projection is $5,000,000 in year O, $2.900,000 in year 10, and $137,600 in years 11 and beyond. At i. 13% per year, calculate the infinite-life equivalent annual cost in years O through infinity of the proposal. 10 points The Infinite-life equivalent annual cost is determined to be $ 3136265 O

Explanation / Answer

Answer: $ 1,215,560.

Workings :

Present value of cost = $ 5,000,000 + $ 2,900,000 / ( 1.13) 10 + $ 137,600 / 0.13 = $ 5,000,000 + $ 854,306.21 + $ 1,058461.54 = $ 6,912,767.75

Present value interest factor of annuity for n=11 , i - 0.13 = 5.6869

Infinite life equivalent annual cost = $ 6,912,768 / 5.6869 = $ 1,215,559.97

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