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Ok so a company wants to deposit extra money to cover the increased maintenance costs for...

Ok so a company wants to deposit extra money to cover the increased maintenance costs for the next 10 years. How much is the company to deposit now if they expect the costs to increase by $4,953 per year, starting from year 2, and their MARR is 1%?

I got 46911.37 but I am not sure if I am wrong because I did not do anything with the starting from year 2. Thanks

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Answer #1

Hello,

Hope you are doing well !!

The cost is increasing and hence the amount of increased cost every year would be different so for the second year it would be $4953 and then the third year it would be $9906 (4953+4953). Hence below is the table.

Year Cost PVF PV
2 4953 0.980296 4855.406
3 9906 0.97059 9614.666
4 14859 0.96098 14279.21
5 19812 0.951466 18850.44
6 24765 0.942045 23329.75
7 29718 0.932718 27718.52
8 34671 0.923483 32018.09
9 39624 0.91434 36229.8
10 44577 0.905287 40354.98
207250.8

Hence the amount of deposit should be $207250.8

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