Demco Products, a company that manufactures stainless steel control valves, has a fund for equipment replacement that contains $500,000. The company plans to spend $85,000 each year on new equipment. (a) Estimate the number of years it will take to reduce the fund to no more than $85,000 at an interest rate of 10% per year. (b) Use the NPER function to determine the exact number of years.
What will be an ideal response?
(a) 500,000 = 85,000(P/A,10%,n)
(P/A,10%,n) = 5.8824
From 10% table, n is between 9 and 10 years.
(b) Using the function = NPER(10%,-85000,500000), the displayed n = 9.3 years.
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