Because of a chronic water shortage in California, new athletic fields must use artificial turf or xeriscape landscaping. If the value of the water saved each month is $6000, how much can a private developer afford to spend now on artificial turf provided he must recover his investment in 5 years. Use an interest rate of 18% per year, compounded continuously? Write the spreadsheet function to display the answer.
What will be an ideal response?
18% per year = 18/12 = 1.50% per month
i = e?.?¹? – 1 = 1.51% per month
P = 6000(P/A,1.51%,60)
= 6000{[(1 + 0.0151)?? – 1]/[0.0151(1 + 0.0151)??]}
= 6000(39.2792)
= $235,675
Spreadsheet: = = - PV(EFFECT(1.5%,10000),60,6000,) displays $235,596
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