Question

0 You skipped this question in the previous attempt. Check my work Improvised explosive devices (IEDs) are responsible for many deaths in times of strife and war. Unmanned ground vehicles (robots) can be used to disarm the IEDs and perform other tasks as well. If the robots cost $165,000 each and the military arms unit signs a contract to purchase 3,000 of them now and another 8,000 one year from now, what is the equivalent annual cost of the contract over a 8-year period at 11% per year interest? The equivalent cost of the contract is determined to be $ . Prey 5 of 12 !!! Next >

Answer 1

You have asked two unrelated questions in the same post. I have addressed the first one. Please post the balance question separately.

Cash flow in year 0 = C0 = Number of robots purchased now x cost per robot = 3,000 x 165,000 = $  495,000,000

Cash flow in year 1 = C1 = Number of robots purchased 1 year later x cost per robot = 8,000 x 165,000 = $ 1,320,000,000

Interest rate, r = 11%

PV of the cash flows = C0 + C1 x (1 + r)-1 = 495,000,000 + 1,320,000,000 x (1 + 11%)-1 =  1,684,189,189

If C is the equivalent annual cost over n = 8 years then,

PV = C / r x [1 - (1 + r)-n]

Or,  1,684,189,189 = C / 11% x [1 - (1 + 11%)-8] = 5.1461C

Hence, the equivalent annual cost = C = 1,684,189,189 / 5.1461 = $  327,273,419