Question

1. Carmen Neal's firm hired a cleaning company to a 4 year contract. The company charged $1,000 at the end of year 1 and the rate increased by 20% per year afterwards. If Ms. Neal's firm decided against the hire and invested the money instead (at 25% per year interest), what would be the firm's annual equivalent worth? (10pts) Azalia Jones drove her vehicle from Corpus Christie to Jackson for school in 2018. She filled up her vehicle at Valero for $2.31 per gallon. In 2006, the price was $1.07 per gallon. What is the rate increase in gasoline over the period? (10pts) 2.

Answer 1

1. As per the question Carmen Neal's firm hired a cleaning company to a 4 year contract
the company charges $1000 at the end of year 1 and the rate increases by 20% per year
	Year	Charged money in previous year	20% Increase	Total Money charged
	1			1000
	2	1000	200	1200
	3	1200	240	1440
	4	1440	288	1728
If Mr. Neal decides to invest the money at the rate of 25% instead of hire
then the net present worth of the investment (NPW) is
NPW= 1000(P/F,25%,1) + 1200(P/F,25%,2) + 1440(P/F,25%,3) + 1728(P/F,25%,4)
NPW= 1000(.8000) + 1200(.6400) + 1440(.5120) + 1728(.4096)
NPW= 800 + 768 + 737.28 +707.79
NPW= 3013.07
Firms Annual Equivalent Worth (AEW) = NPW(A/P,25%,4)
AEW = 3013.07(.4234)
AEW = 1275.734 or Approx $1276
Firms Annual Equivalent Worth (AEW) is Approx $1276
2. as per the question Azalia jones drove her vehicle from corus christie to Jackson for school
she used to filled up gasoline her vehicle at valero
price paid for filling gasoline in 2018 is $2.31 per gallon
price paid for filling gasoline in 2006 was $1.07 per gallon
Rate Increase in Gasoline = {(Price of Gasoline in 2018 - Price of Gasoline in 2006) / Price of Gasoline in 2006} x 100
Rate Increase in Gasoline = {($2.31 - $1.07) / $1.07} x 100
Rate Increase in Gasoline = 115.89%
the price of gasoline increased over the period is 115.89%