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3 October, 12:55

Each year you need to power wash your deck. You can rent a power washer for $38 per day. If you go with this option, you will pay $38 each year starting today up to and including year 10 If you buy the power washer, you will pay $175 today and the power washer will last up to and including year 10. If your investments earn 4% compounded annually, how much does it save you in present value terms to own the power washer

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  1. 3 October, 13:04
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    You will save $133.21 by buying the washer.

    Explanation:

    Giving the following information:

    Rent = $38 per day.

    Number of years = 10 years

    Buying price = $175

    I will assume that you rent the washer one day each year.

    First, we need to calculate the final value of renting the washer.

    FV = {A*[ (1+i) ^n-1]}/i

    A = annual pay = 38

    i = 0.04

    n = 10

    FV = {38*[ (1.04^10) - 1]} / 0.04 = 456.23

    Now, we can calculate the present value:

    PV = FV / (1+i) ^n

    PV = 456.23 / 1.04^10 = $308.21

    You will save (308.21-175) $133.21 by buying the washer.
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