6. A construction firm is considering the purchase of an air compressor. The maintenancecost of this air compressor over its life (8 years) is listed below.1234567Maintenance $700 $700 $1000 $1300 $1600 $1900 $2200year8$2500If we assume that the maintenance costs are paid at the end of each year then what isthe present equivalent maintenance cost if the interest rate is 12%?

The present value is given as: P = F(1+R)twhere, P : present value F : Future value R : rate of…

Answered: 6. A construction firm is considering…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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6. A construction firm is considering the purchase of an air compressor. The maintenance
cost of this air compressor over its life (8 years) is listed below.
1
2
3
4
5
6
7
Maintenance $700 $700 $1000 $1300 $1600 $1900 $2200
year
8
$2500
If we assume that the maintenance costs are paid at the end of each year then what is
the present equivalent maintenance cost if the interest rate is 12%?

Expert Solution

Introduction

The present value is given as:

$P = \frac{F}{{(1 + R)}^{t}} w h e r e, P : p r e s e n t v a l u e F : F u t u r e v a l u e R : r a t e o f i n t e r e s t p e r y e a r t : t o t a l n u m b e r o f y e a r s i n v o l v e d .$

Hence we will figure out the present value of all these maintenance cost and add them up together to get the total present value.

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