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    MaryLou182's Avatar
    MaryLou182 Posts: 5, Reputation: 1
    New Member
    		  
    #1

    Dec 22, 2009, 02:42 PM
    Present value
    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?
    ROLCAM's Avatar
    ROLCAM Posts: 1,420, Reputation: 23
    Ultra Member
    		  
    #2

    Dec 22, 2009, 05:12 PM
    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
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