A contractor is saving money for a lucrative project. The initial cost is $175,000, annual outlays for maintenance is $1,500 and $4,000 every 3 years. There will be an additional one- time cost of $15,000 in 2 years for miscellaneous fixtures. At an interest rate of 8% per annum, how much money must he save now (in $) for the project?

A contractor is saving money for a lucrative project. The initial cost is $175,000, annual outlays for maintenance is $1,500 and $4,000 every 3 years. There will be an additional one- time cost of $15,000 in 2 years for miscellaneous fixtures. At an interest rate of 8% per annum, how much money must he save now (in $) for the project?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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Similar questions

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You have an option of either buying a new machine for R2 million or employing 4 people to do the same job at the annual wage of R100,000 per person per year. Assume the following:• Equipment maintenance is 2% of the capital cost per year, the discount rate, equivalent to your working average cost of capital (WACC), is 16% and the project duration is 10 years• Salaries are paid at the end of the year, as from the end of year one.Calculate the following:a. The Annual Worth (AW) of both optionsb. Which option will be better for you? Why?c. Do a sensitivity analysis showing the variation in the AW of both options (separately) with ±25% changes in WACC, capital cost (option 1 only) and number of employees (option 2 only). Draw two separate graphs showing the relationships between the variables.d. Assume that wages are rising; at what salary per employee is the two options equivalent?e. Now assume that WACC is falling; at what value of WACC are the two scenarios equivalent (use base case…
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