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?