Question

The State of Chiapas, Mexico, decided to fund a program for literacy. The first cost of $250,000 now and an updated budget of $95,000 every 7 years forever is requested. Determine the perpetual equivalent annual cost at an interest rate of 10% per year. The perpetual equivalent annual cost is $

Answer 1

The perpetual equivalent annual cost is - $35013

The perpetual annual cost calculation

interest i = 10%

Period = n = 7 years

Formula

A/F = i/(1+i)^n-1

= 0.1/(1+0.1)^7-1

= 0.1054

The perpetual annual cost

= -250000*0.1-95000(0.1054)

= -25000-10013

= - 35013

Therefore the perpetual equivalent annual cost is   $35013