Present Value A section of roadway pavement costs $22,000 a year to maintain. Wh

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Present Value

A section of roadway pavement costs $22,000 a year to maintain. What immediate expenditure for a new replacement for the existing pavement is justified if no maintenance will be required for the first 5 years, $7,500 per year for the next 10 years and $20,000 a year thereafter in the 20 year period of interest? Assume money to cost 7%.

Monterey County plans to restore a wetlands area in the Elkhorn slough near Moss Landing. This project will cost $24,000,000. They will need to pay 5% interest for borrowing money to do this. They plan to pay this off over a 25 year period. What will be the annualized cost for this project?

If you borrow $100,000 from a bank and pay back the loan annually over a period of 30 years at a fixed interest rate of 5%, you will make 30 payments of $6505.14, which is equivalent to $542.10 a month (i.e. 6505.14

Explanation / Answer

Question 2

-1.184514479

Question 3

Since the payment is made on monthly basis @ $536.82 it reduces the balance for next month and the interest burden comes down. while calculatin for yearly and deviding with 12 will be based on yearly interest for whole amount (assuming payable at end of year) and balances diminish once a year and credit for monthly payments will not be taken into consideration. Hence the difference

Problem 1 Description Savings PV/Based on PV tables @ 7% PV Present value for 5 years 22000 4.1002          90,204.40 Present value for next 10 years 14500 5.0075          72,608.75 Present value for Last 5 years 2000 1.4861            2,972.20 Total Present Value of savings       165,785.35

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