Question

It is estimated that the maintenance cost on a new car will be $500 the first year. Each subsequent year, this cost is expected to increase by $150. How much would you need to set aside when you bought a new car to pay all future maintenance costs if you planned to keep the vehicle for 10 years

Answer 1

Answer:

$-8,609

Explanation:

Calculation for How much would you need to set aside

Year Cashflows PVF 5% Present values

1 -500 *0.952381 =-476.19

2 -650(500+150) *0.907029 =-589.569

3 -800(650+150) *0.863838 =-691.07

4 -950(800+150) *0.822702 =-781.567

5 -1100(950+150) *0.783526 =-861.879

6 -1250(1100+150) *0.746215 =-932.769

7 -1400(1250+150) *0.710681 =-994.954

8 -1550(1400+150) *0.676839 =-1049.1

9 -1700(1550+150) *0.644609 =-1095.84

10 -1850(1700+150) *0.613913 =-1135.74

PV=Present value $-8,609

Therefore the amount you will need to set aside is $-8,609