Answer:
The present value of the savings=$37,064.22
Step-by-step explanation:
The present value of the savings is the amount that it worths today, this would be done in two stages;
The first stage is to determined the present of the first cash savings as follows:
PV of the first payment = 4,000 × (1.09)^(-1)=3,669.72
Second step is to determine the present value of the declining perpetuity
PV of declining perpetuity. A perpetuity is the series of cash flow occurring for the foreseeable future of years.
A- 4,000, g-negative growth rate = 1%,
interest rate = 9%
PV in year 1 = 4,000× (1-0.09)/(0.09+0.01)
= 36,400
PV in year 0 = 36,400 × (1.09)^(-1) = 33,394.49
The present value of the savings = 33,394.49 + 3,669.72= 37,064.22
The present value of the savings=$37,064.22