To evaluate bids from outside firms for a maintenance, Ask an Expert

Economics

Time Value of Money

1) Will annual payments of $4800 be sufficient to repay a loan of $40,000 in 20 years of an interest rate of

10% compounded annually?

10% compounded continuously?

12% compounded quarterly?

2) Maintenance costs for a new piece of mining equipment are expected to be $20,000 in the first year, rising by $1,000 per year thereafter. The machine has an expected life of 8 years and interest is 10% annually. To evaluate bids from outside firms for a maintenance contract you need to know the present value of these costs. What is this value?

In problem 8 if the maintenance costs rose by 6% per year instead of the fixed amount what is the present value of the maintenance costs?

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Business Economics, Economics

Category:- Business Economics
Reference No.:- M928307

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