# Improvised explosive devices (IEDs) are responsible for many deaths in times of strife and war. Unmanned ground vehicles (robots) can be used to disarm the IEDs and perform other tasks as well. If the robots cost \$125,000 each and the military arms unit signs a contract to purchase 4,000 of them now and another 7,000 one year from now, what is the equivalent annual cost of the contract over a 7-year period at 10% per year interest? The equivalent cost of the contract is determined to be \$

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Improvised explosive devices (IEDs) are responsible for many deaths in times of strife and war. Unmanned ground vehicles (robots) can be used to disarm the IEDs and perform other tasks as well. If the robots cost \$125,000 each and the military arms unit signs a contract to purchase 4,000 of them now and another 7,000 one year from now, what is the equivalent annual cost of the contract over a 7-year period at 10% per year interest?

The equivalent cost of the contract is determined to be \$

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Step 1

We need to use the concept of time value of money to solve the question. According to the concept of time value of money, the value of money available at the present time is more compared to the same sum in some future time. This is because of the earning potential of money, that is, we can earn interest on money by investing.

Step 2

First we need to determine the net present value using the formula:

Step 3

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