Homework Answers
Cost of quality control system = $28,160
Maintenance fee for 5 years = $1,561 while it rises by $364 every year till year 13
Rate of Interest = 7%
Present value is calculated as: [Cash Flow / (1 + Rate of Interest) ^ Year]
| Year | Cost | Present Value of Cost |
| 1 | 1561 | 1458.88 |
| 2 | 1561 | 1363.44 |
| 3 | 1561 | 1274.24 |
| 4 | 1561 | 1190.88 |
| 5 | 1561 | 1112.97 |
| 6 | 1925 | 1282.71 |
| 7 | 2289 | 1425.47 |
| 8 | 2653 | 1544.07 |
| 9 | 3017 | 1641.05 |
| 10 | 3381 | 1718.73 |
| 11 | 3745 | 1779.22 |
| 12 | 4109 | 1824.45 |
| 13 | 4473 | 1856.14 |
| 19472.24 |
Total present worth value = Cost of system - Sum of Present value Maintenance cost = $28,160 - $19,472.24 = $8,687.76
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