Question

Assume that the cost of money is 10% per year. The initial cost of a small personal aircraft is $35,000, the annual repair and maintenance cost is $20,000 and the salvage value is $10,000. The aircraft is kept for 2 years. The present worth of the aircraft is :__________

Answer 1

The present worth of aircraft = $29137.82

Step-by-step explanation:

Given the cost of money (r ) = 10%

The initial cost of small aircraft = $35000

Annual repair and maintenance costs (A) = $20000

Salvage valaue = $10000

Now calculate the present value of aircraft by adding the initial cost of annual maintenance and salvage value and subtracting the initial cost.

`Present worth = initial cost + (A[1-(1+r)^(-n)])/(r) - (Salvage \ value)/((1 + r)^(n)) \\= 35000 + (20000 [1 – (1+ 0.01)^(-2)])/(0.01) - (10000)/((1 + 0.01)^(2)) \\= $29137.82`