What is the equivalent annual cost in years 1 through 7 of a contract that has a first cost of $70,000 in year O and annual costs of $20,000 in years 3 through 7? Use an interest rate of 10% per year. The equivalent annual cost is determined to be $|

What is the equivalent annual cost in years 1 through 7 of a contract that has a first cost of $70,000 in year O and annual costs of $20,000 in years 3 through 7? Use an interest rate of 10% per year. The equivalent annual cost is determined to be $|

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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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.

Question

What is the equivalent annual cost in years 1 through 7 of a contract that has a first cost of $70,000 in year O and annual costs of
$20,000 in years 3 through 7? Use an interest rate of 10% per year.
The equivalent annual cost is determined to be $|

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