Question

The State of Chiapas, Mexico, decided to fund a program for improving reading skills in elementary school students. The first cost is $300,000 now and an update amount of $160,000 every 5 years forever. Determine the perpetual equivalent annual cost at an interest rate of 11% per year. The perpetual equivalent annual cost is determined to be -$

Answer 1

Step 1

Formula:

Annual worth =- (First cost*Interest rate) - (Update amount*(A/F,Rate,years)

Step 2

Calculate the annual worth as follows:

Annual worth = (First cost*Interest rate) - (Update amount*(A/F,Rate,years)

Annual worth =-($300,000*11%) - ($160,000*(A/F,11%,5))

Annual worth = -$33,000 - ($160,000*(11%/((1+11%)^4 -1))

Annual worth = -$33,000 - $33,972.22

Annual worth = -$66,972.22

Therefore, the annual worth is -$66.972.22