Question

You are thinking of building a new machine that will save you $ 5 comma 000 in the first year. The machine will then begin to wear out so that the savings decline at a rate of 2 % per year forever. What is the present value of the savings if the interest rate is 10 % per​ year? The present value of the savings is ​$ 41667. ​(Round to the nearest​ dollar.)

Answer 1

$41,667

Step-by-step explanation:

Savings can be seen as a perpetuity that is said to grows at a negative rate.

PV of savings :

5,000/(10%+2%)

= 5,000 /12×100

$41,667

Therefore the present value of the savings is ​$ 41,667