FOCUS ON PERSONAL FINANCE W/CONNECT IA
6th Edition
ISBN: 2818440048821
Author: Kapoor
Publisher: MCG
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Chapter 8, Problem 3P
Summary Introduction
To determine: The cost an insurance company would occur to pay to replace the personal property of a family.
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Eddie’s Precision Machine Shop is insured for $700,000. The present yearly insurance premium is $1.00 per $100 of coverage. A sprinkler system with an estimated life of 20 years and no salvage value can be installed for $20,000. Annual maintenance costs for the sprinkler system are $400. If the sprinkler system is installed, the system must be included in the shop’s value for insurance purposes, but the insurance premium will reduce to $0.40 per $100 of coverage. Eddie uses a MARR of 15 %/year. Solve, a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Is the sprinkler system economically justified?
The Bainters want to estimate annual costs for purchasing the home so they can compare them with the costs they estimated for renting. These costs are expenses the Bainters will have only if they purchase instead of rent:
monthly mortgage payment
$200 per year for HOA fees
$1,750 per year for property taxes
$1,950 per year for home maintenance
$75 per month for water and sewer services
$10 per month for trash and recycling services
$65 per month for internet
$110 per month for homeowners' insurance
Approximately how much should the Bainters budget for a year?
Your answer should include
the total amount the Bainters should budget
the calculations or an explanation of how you determined the answer
Eddie’s Precision Machine Shop is insured for $700,000. The present yearly insurance premium is $1.00 per $100 of coverage. A sprinkler system with an estimated life of 20 years and no salvage value can be installed for $20,000. Annual maintenance costs for the sprinkler system are $400. If the sprinkler system is installed, the system must be included in the shop’s value for insurance purposes, but the insurance premium will reduce to $0.40 per $100 of coverage. Eddie uses a MARR of 15% per year. What is the present worth of this investment? What is your recommendation to Eddie?
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FOCUS ON PERSONAL FINANCE W/CONNECT IA
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