Question 30: A small manufacturing company is considering purchasing a maintenan

Question

Question 30: A small manufacturing company is considering purchasing a maintenance contract for its air conditioning systems. Since all of its systems are new, the company plans to begin the contract in year four and continue through year ten. The cost of the contract is $3,200 per year and the company's minimum attractive rate of return is 12% per year. The present worth of the contract is nearest to: A) $6,605 B) $10,395 C) $14,604 D) $18,081 Question 31: If the company wishes to pre-pay the contract with uniform payments in years one, two and three only, the amount of each payment will be nearest to: A) $2,750 B) $4,327 C) $5,491 D) $6,080

Explanation / Answer

30)Present worth = [PVA 12%,4-10 * Annual amount]

                  = 3.24839*3200

                 -=$ 10394.85 [rounded to 10395]

correct option is "B"

**find present value annuity factor from year4 - year 10 from table at 12%

31) present value = PVA12%,3* Annual amount

        10395= 2.40183* A

         Amount = 10395 /2.40183

               = 4327

correct option is " B"

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