To identify cracks in its bottles, a manufacturer of glass bottles purchased an automatic inspection machine. The company believes it will save $100,000 in year 1, $120,000 in year 2, and constant amounts increasing by $20,000 each year for the next 8 years. At an interest rate of 9% per year, what is the equivalent uniform annual amount over the 10 years of savings?

To identify cracks in its bottles, a manufacturer of glass bottles purchased an automatic inspection machine. The company believes it will save $100,000 in year 1, $120,000 in year 2, and constant amounts increasing by $20,000 each year for the next 8 years. At an interest rate of 9% per year, what is the equivalent uniform annual amount over the 10 years of savings?

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

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Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

To identify cracks in its bottles, a manufacturer of glass bottles purchased
an automatic inspection machine. The company believes it will save
$100,000 in year 1, $120,000 in year 2, and constant amounts increasing by
$20,000 each year for the next 8 years. At an interest rate of 9% per year,
what is the equivalent uniform annual amount over the 10 years of savings?

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