Question

49. Maintenance costs for a new facility are expected to be $112,000 for the first year of operation. It is anticipated that these costs will increase at a rate of 8 percent per year. Assuming a rate of return of 10 percent, what is the present value of the stream of maintenance costs over the next 30 years?

Answer 1

Answer:

Year	Maintenance	PVF at 10%	Present Value
	Cost			(Cost*PVF
1	112000	0.909091		101818.2
2	120960	0.826446		99966.94
3	130636.8	0.751315		98149.36
4	141087.7	0.683013		96364.83
5	152374.8	0.620921		94612.74
6	164564.7	0.564474		92892.51
7	177729.9	0.513158		91203.55
8	191948.3	0.466507		89545.31
9	207304.2	0.424098		87917.21
10	223888.5	0.385543		86318.72
11	241799.6	0.350494		84749.28
12	261143.6	0.318631		83208.39
13	282035.1	0.289664		81695.51
14	304597.9	0.263331		80210.14
15	328965.7	0.239392		78751.77
16	355282.9	0.217629		77319.92
17	383705.6	0.197845		75914.1
18	414402	0.179859		74533.85
19	447554.2	0.163508		73178.69
20	483358.5	0.148644		71848.16
21	522027.2	0.135131		70541.83
22	563789.4	0.122846		69259.25
23	608892.5	0.111678		68000
24	657603.9	0.101526		66763.63
25	710212.2	0.092296		65549.75
26	767029.2	0.083905		64357.93
27	828391.6	0.076278		63187.79
28	894662.9	0.069343		62038.92
29	966235.9	0.063039		60910.94
30	1043535	0.057309		59803.47
Present value of Maintenance cost	2370613
Note: Maintenance cost of Year-1 = 112000 (Given)
Maintenance cost of each year = Maintenance cost of previous year (1+8%)
Answer is Present value of Maintenance cost = $ 2370613