Check my work What is the equivalent annual cost in years 1 through 9 of a...

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Answer 1

Answer #1


	Present Value of Cash Flow
	(Cash Flow)/((1+i)^N)
	i=Interest Rate=11%=0.11
	N=Year of Cash Flow
		N	CF	PV=CF/(1.11^N)
		Year	Cash Flow	Present Value
		0	$74,000	$74,000
		1	$0	$0
		2	$0	$0
		3	$16,000	$11,699
		4	$16,000	$10,540
		5	$16,000	$9,495
		6	$16,000	$8,554
		7	$16,000	$7,707
		8	$16,000	$6,943
		9	$16,000	$6,255
			TOTAL	$135,192
Pv	Present Value of Costs	$135,192
Rate	Interest Rate	11%
Nper	Number of years	9
PMT	The Equivalent Annual Cost is determined to be	$24,415.97
	(Using PMT function of excel)

	PRESENT VALUE OF CASH FLOW YEAR1-10
Rate	Interest rate	8%
Nper	Number of Years	10
Pmt	Annual Cash Flow	$300
PV	Present Value of Cash Flows Year1-10	$2,013.02
	(Using PV function of excel)
	Present Value of Year 11 Cash Flow=x/(1.08^11)=	x/	2.331639
	Present Value of Year 11 Cash Flow=x/(1.08^11)=	0.42888286	x
	Present Value of Year 0 Cash Flow	x
	Total Present Value=2013.02+1.42888286*x

	Equivalent annual Cash Flow for Year1-11	$300
Rate	Interest rate	8%
Nper	Number of Years	11
Pmt	Annual Cash Flow	$300
PV	Present Value of Cash Flows	$2,141.69
	(Using PV function of excel)
	2141.69=2013.02+1.42888286x
	1.42888286x=2141.69-2013.02	$128.66
	x=128.66/1.42888286=	$90.05
	x=$90.05
	Value of x is determined to be	$90.05

		N	CF	PV=CF/(1.08^N)
		Year	Cash Flow	Present Value
		0	$90.05	$90
		1	$300.00	$278
		2	$300.00	$257
		3	$300.00	$238
		4	$300.00	$221
		5	$300.00	$204
		6	$300.00	$189
		7	$300.00	$175
		8	$300.00	$162
		9	$300.00	$150
		10	$300.00	$139
		11	$90.05	$39
			TOTAL	$2,141.69

Pv	Present Value of Costs	$2,142
Rate	Interest Rate	8%
Nper	Number of years	11
PMT	The Equivalent Annual Cost is determined to be	$300.00
	(Using PMT function of excel)

Answer 2

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