Question

Pollution control equipment for a pulverized coal cyclone furnace is expected to cost $190,000 two years from now and another $120,000 9 years from now. If Monongahela Power wants to set aside enough money now to cover these costs, how much must be invested at an interest rate of 9% per year compounded quarterly

Answer 1

Answer:

$212,882.75

Explanation:

Cost from 2 years now = $190,000

Cost from 9 years now = $120,000

Interest rate = 9% Quarterly

Present Worth = Cost from 2 years now*[1/(1+interest/m)^nm] * Cost from 2 years now*[1/(1+interest/m)^nm]

Present Worth = 190,000*[1/(1+0.09/4)^2*4] + 120,000*[1/(1+0.09/4)^9*4]

Present Worth = 190,000*[1/(1.0225)^8] + 120,000*[1/(1.0225)^36]

Present Worth = 190,000*[1/1.19483] + 120,000*[1/2.22782]

Present Worth = 190,000*0.83693915 + 120,000*0.4488693

Present Worth = 159018.4385 + 53864.316

Present Worth = 212882.7545

Present Worth = $212,882.75

Thus, the amount to invest to cover these cost is $212,882.75