A company is buying a sound system.

Type A
Will cost £20,000
Will not need servicing.

Type B
Will cost £15,000.
Will need servicing at the end of each year.
Cost of servicing - £2000.

Both systems only last 5 yrs.
Cost of finance = 8%.

In present value terms, what's the cost of Type B so that we can compare with the cost of Type A?

type b

servicing

1 2,000.00 1.08 1,851.85
2 2,000.00 1.1664 1,714.68
3 2,000.00 1.259712 1,587.66
4 2,000.00 1.36048896 1,470.06
5 2,000.00 1.46932812 1,366.79

total 7,991.05
add initial cost**= $15,000.00

grand total *****= $22,991.05