The Owner of Blue Bayou Café usually pays his appliance (refrigerators, dish washers, and freezers) maintenance contract by the year. If he projects the annual costs shown, find the equivalent A value for years 1 through 5.
What will be an ideal response?
P = 5000(P/A,10%,3) + 7000(P/A,12%,2)(P/F,10%,3)
= 5000(2.4869) + 7000(1.6901)(0.7513)
= 12,434.50 + 8888.40
= $21,323
Now substitute A value for cash flows.
21,323 = A(P/A,10%,3) + A(P/A,12%,2)(P/F,10%,3)
= A(2.4869) + A(1.6901)(0.7513)
= A(3.7567)
A = $5676
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Fill in the blank(s) with the appropriate word(s).
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What will be an ideal response?