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

Answer:

The present worth of aircraft = $29137.82

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.

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