ABC company has just purchased a life truck that has a useful life of 5 years. The engineer estimates that maintenance costs for the truck during the first year will be $2,000. As the truck ages, maintenance costs are expected to increase at a rate of $300 per year over the remaining life. Assume that the maintenance costs occur at the end of each year. The firm wants to set up a maintenance account that earns 15% interest per year. All future maintenance expenses will be paid out of this account. How much does the firm have to deposit in the account now? O $8,436.85 O $11,500.00 O $8,920.21 O $8,127.02
ABC company has just purchased a life truck that has a useful life of 5 years. The engineer estimates that maintenance costs for the truck during the first year will be $2,000. As the truck ages, maintenance costs are expected to increase at a rate of $300 per year over the remaining life. Assume that the maintenance costs occur at the end of each year. The firm wants to set up a maintenance account that earns 15% interest per year. All future maintenance expenses will be paid out of this account. How much does the firm have to deposit in the account now? O $8,436.85 O $11,500.00 O $8,920.21 O $8,127.02
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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![**Planning for Truck Maintenance Expenses**
ABC company has just purchased a life truck that has a useful life of 5 years. The engineer estimates that maintenance costs for the truck during the first year will be $2,000. As the truck ages, maintenance costs are expected to increase at a rate of $300 per year over the remaining life. Assume that the maintenance costs occur at the end of each year.
The firm wants to set up a maintenance account that earns 15% interest per year. All future maintenance expenses will be paid out of this account. How much does the firm have to deposit in the account now?
**Options:**
- $8,436.85
- $11,500.00
- $8,920.21
- $8,127.02
The answer involves calculating the present value of the maintenance costs over the truck’s 5-year life span, considering an interest rate of 15% per year. Maintenance costs increase annually by $300, starting from $2,000 in the first year.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fcbbb58e9-1858-4d62-8ad9-26d3be75e20a%2F76fba9fd-70c3-4872-b3bd-41328bc0e99a%2Fewcs6i7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Planning for Truck Maintenance Expenses**
ABC company has just purchased a life truck that has a useful life of 5 years. The engineer estimates that maintenance costs for the truck during the first year will be $2,000. As the truck ages, maintenance costs are expected to increase at a rate of $300 per year over the remaining life. Assume that the maintenance costs occur at the end of each year.
The firm wants to set up a maintenance account that earns 15% interest per year. All future maintenance expenses will be paid out of this account. How much does the firm have to deposit in the account now?
**Options:**
- $8,436.85
- $11,500.00
- $8,920.21
- $8,127.02
The answer involves calculating the present value of the maintenance costs over the truck’s 5-year life span, considering an interest rate of 15% per year. Maintenance costs increase annually by $300, starting from $2,000 in the first year.
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