Question

4. To attract industry, a city has made an offer to a corporation. The city will install all roads and services for the plant site at no immediate cost to the corporation, but the corporation will be expected to bear the cost of operation and maintenance on a cost-sharing schedule whereby $65,000 is paid 2 years from now and each subsequent payment will be $5,000 less. The corporation’s obligation will end with the last $5,000 payment. What is the present worth today of this agreement if the annual interest rate is 9%?

Answer 1

rate positively ..

	computation of present value
Year	Cash flow	PVIF @ 9%	Present value
1	0	0.917431193	$                  -
2	65,000	0.841679993	$      54,709.20
3	60,000	0.77218348	$      46,331.01
4	55,000	0.708425211	$      38,963.39
5	50,000	0.649931386	$      32,496.57
6	45,000	0.596267327	$      26,832.03
7	40,000	0.547034245	$      21,881.37
8	35,000	0.50186628	$      17,565.32
9	30,000	0.46042778	$      13,812.83
10	25,000	0.422410807	$      10,560.27
11	20,000	0.38753285	$        7,750.66
12	15,000	0.355534725	$        5,333.02
13	10,000	0.326178647	$        3,261.79
14	5,000	0.299246465	$        1,496.23
			$    280,993.68
Ans =		$ 280,993.68