Improvised explosive devices (IEDs) are responsible for many deaths in times of
ID: 1139961 • Letter: I
Question
Improvised explosive devices (IEDs) are responsible for many deaths in times of strife and war. Unmanned ground vehicles (robots) can be used to disarm the IEDs and perform other tasks as well. If the robots cost $160,000 each and the military arms unit signs a contract to purchase 4,500 of them now and another 6,500 one year from now, what is the equivalent annual cost of the contract over a 6-year period at 11% per year interest?
The equivalent cost of the contract is determined to be $__________
Explanation / Answer
Ans: $391,699,670.4
Explanation:
Present Investment, investment in period 0 = $160,000 * 4,500 = 720,000,000
investment at the end of period 1 = $160,000 * 6,500 = 1,040,000,000
Present value = 720,000,000 + 1,040,000,000(P/F, 11%, 1)
= 720,000,000 + 1,040,000,000(0.9009)
= 720,000,000 + 936,936,000
= $1,656,936,000
The annual equivalent cost of the contract = 1,656,936,000(A/P, 11%, 6)
= 1,656,936,000(0.2364)
= $391,699,670.4