The council members of a small town have decided that the earth levee that protects the town flooding should be rebuilt and strengthened. The town engineer estimates that the cost of the work at the end of the first year will be $85,000. He estimates that in subsequent years the annual repair costs will decline by $10,000 making the second-year cost $75,000; the third year $65,000, and so forth. The council members want to know what the equivalent present cost is for the first 5 years of repair work if annual effective interest is 4%.
The council members of a small town have decided that the earth levee that protects the town flooding should be rebuilt and strengthened. The town engineer estimates that the cost of the work at the end of the first year will be $85,000. He estimates that in subsequent years the annual repair costs will decline by $10,000 making the second-year cost $75,000; the third year $65,000, and so forth. The council members want to know what the equivalent present cost is for the first 5 years of repair work if annual effective interest is 4%.
Chapter6: Business Expenses
Section: Chapter Questions
Problem 78IIP
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Transcribed Image Text:2) The council members of a small town have decided that the earth levee that protects the town
flooding should be rebuilt and strengthened. The town engineer estimates that the cost of the
work at the end of the first year will be $85,000. He estimates that in subsequent years the
annual repair costs will decline by $10,000 making the second-year cost $75,000; the third
year $65,000, and so forth. The council members want to know what the equivalent present
cost is for the first 5 years of repair work if annual effective interest is 4%.
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