Find the amount that would have to be used to open an account (open at time 0, t

Question

Find the amount that would have to be used to open an account (open at time 0, the initial deposit) followed by 12 deposits of the same amount at the end of each year in an account earning 5.00% per year if the desired amount available for withdrawal 30 years after account opening is 80, 000. Two mutually exclusively equipment purchase options were identified by ACME. The cash flows for each are shown below. Negative values represent costs in the year stated. The need for the equipment is at least 8 years. Using an interest rate of 12.0%, report the equivalent PW of each option that would be the valid for comparing the two options and identify the best option for ACME.

Explanation / Answer

1) P= A / (1+rt)

=80,000 / 1+0.05 *30)

=80,000 / 1.05*30

=80,000 /31.50

=$2539.68 /12 months

P=$211.64

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