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A company purchased a CAD software for $5000 now and the annual payments of $500 per year for 6 years starting 3 years from now for annual upgrades is contracted. What is the present worth in year 0 of the payments if the interest rate is 8% per year?

Question

A company purchased a CAD software for $5000 now and the annual payments of $500 per year for 6 years starting 3 years from now for annual upgrades is contracted. What is the present worth in year 0 of the payments if the interest rate is 8% per year?

check_circleAnswer
Step 1

Preset worth:

Present worth can be calculated as follows:

...
Initial amount +annual payment
(1+interest rate)-1
interest rate (1+interest rate)
Present worth |
(1+intere st rate)
5,000 500
(1+0.08)-1
0.08(1 0.08)(1+ 0.08)
1
6
(5,000 500
(1+0.08)-
0.08(1 0.08)(1+0.08)
0.58687 (0.8573)
1
6
=5,000500
+
0.12694
5,000 500 (4.623) (0.8573)
6,981.73
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Initial amount +annual payment (1+interest rate)-1 interest rate (1+interest rate) Present worth | (1+intere st rate) 5,000 500 (1+0.08)-1 0.08(1 0.08)(1+ 0.08) 1 6 (5,000 500 (1+0.08)- 0.08(1 0.08)(1+0.08) 0.58687 (0.8573) 1 6 =5,000500 + 0.12694 5,000 500 (4.623) (0.8573) 6,981.73

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