The annual maintenance cost of a generator is P1000 after 1 year and it is estimated to increase by 10% each year for the subsequent 9 years. Find the present worth of the maintenance cost if the rate of interest is 15% compounded annually.

The annual maintenance cost of a generator is P1000 after 1 year and it is estimated to increase by 10% each year for the subsequent 9 years. Find the present worth of the maintenance cost if the rate of interest is 15% compounded annually.

Principles of Accounting Volume 2

19th Edition

ISBN:9781947172609

Author:OpenStax

Publisher:OpenStax

Chapter11: Capital Budgeting Decisions

Section: Chapter Questions

Problem 13EB: Conestoga Plumbing plans to invest in a new pump that is anticipated to provide annual savings for...

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

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The annual maintenance cost of a generator is P1000 after 1 year and it is estimated to increase by 10% each year for the subsequent 9 years. Find the
present worth of the maintenance cost if the rate of interest is 15% compounded annually.

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