Jenkins Security has learned that a rival has offered to supply a parking garage

Question

Jenkins Security has learned that a rival has offered to supply a parking garage with security for ten years for $45,000 up front and a further $15,000 per year. If Jenkins Security offers to provide security for eight years for an upfront cost of $65,000 and a separate yearly payment, what is the maximum that this yearly payment can be so that Jenkins' offer matches the equivalent annual annuity of their rival's offer? (Assume a cost of capital of 9%.) OA.$3,005 OB, -$3,380 O C.-$3,756 O D. -$3,192

Explanation / Answer

Using a financial calculator,

Cf0 = -45,000; CF1 = -15,000, F1=10 ; press NPV, I = 9 then NPV = -141,264.87 = PV; N = 10, I = 9 then PMT= EAA = 22,011.90;

PV=-65,000; N= 8 years; I=9, then PMT=EAA = $11,743.83;

thus 11,743.83 - 22,011.90 = $15,521.

Related Questions

Navigate

• Browse (All)
• Browse J
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.