What is the equivalent annual cost in years 1 through 7 of a contract that has a first cost of $70,000 in year 0 and annual costs of $15,000 in years 3 through 7? Use an interest rate of 10% per year.
What will be an ideal response?
Find F in year 7 and then convert to A in years 1-7
F = 70,000(F/P,10%,7) + 15,000(F/A,10%,5)
= 70,000(1.9487) + 15,000(6.1051)
= 227,986
A = 227,986(A/F,10%,7)
= 227,986(0.10541)
= $24,032
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