An engineering firm estimates that its cost for employer sponsored health insurance will be $750,000 next year and increase at 9% per year for the next 5 years. The company CFO wants to budget a uniform amount each year to cover these costs. If the firm's rate of return is 6% per year, how much should be invested each year for employer sponsored health care? Express your answer in $ to the nearest $1,000.
An engineering firm estimates that its cost for employer sponsored health insurance will be $750,000 next year and increase at 9% per year for the next 5 years. The company CFO wants to budget a uniform amount each year to cover these costs. If the firm's rate of return is 6% per year, how much should be invested each year for employer sponsored health care? Express your answer in $ to the nearest $1,000.
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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Transcribed Image Text:An engineering firm estimates that its cost for employer sponsored health insurance will be
$750,000 next year and increase at 9% per year for the next 5 years. The company CFO wants to
budget a uniform amount each year to cover these costs. If the firm's rate of return is 6% per year,
how much should be invested each year for employer sponsored health care? Express your answer
in $ to the nearest $1,000.
Expert Solution
Step 1
Equivalent Annual Cost:
- It represents the annual cost of operating, owning, and the maintenance of an asset over its useful life.
- It is primarily used in the areas of capital budgeting by the firm to allow for a comparison of cost-effectiveness.
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