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18 June, 14:28

The TerraMax truck currently being manufactured and field tested by Oshkosh Truck Co. is a driverless truck intended for military use. Such a truck would free personnel for non-driving tasks such as reading maps, scanning for roadside bombs, or scouting for the enemy.

If such trucks would result in reduced injuries to military personnel amounting to $15 million three years from now, determine the present worth of these benefits at an interest rate of 10% per year compounded semiannually.

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  1. 18 June, 15:20
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    The present worth of these benefits at an interest rate of 10% per year compounded semiannually is $11,193,231.

    Explanation:

    Future Value of Benefit = FV = 15 Million

    Interest rate = r = 10% = 0.10 per year = 0.10 / 2 = 0.05 semiannually

    Number of years = 3 years

    Compounding = Semiannually

    Number of periods = n = 3 x 2 = 6

    Present value of benefit is calculated using Following formula

    PV = FV / (1 + r) ^n

    PV = $15,000,000 / (1 + 0.05) ^6

    PV = $15,000,000 / (1.05) ^6

    PV = $15,000,000 / 1.34

    PV = $11,193,231
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