Ask Question
13 October, 19:38

A local government awards a landscaping company a contract worth $1.5 million per year for five years for maintaining public parks. The landscaping company will need to buy some new machinery before they can take on the contract. If the cost of capital is 6%, what is the most that this equipment could cost if the contract is to be worthwhile for the landscaping company

+1
Answers (1)
  1. 13 October, 22:38
    0
    The equipment should not cost more than $6,318,545.68

    Explanation:

    The most that the land scrapping equipment could cost is the present of the 1.5 million annuity discounted at 6% p. a.

    Present Value of Annuity = A * (1 - (1+r) ^ (-n)) / r

    A - 1,500,000, n - 5, r - 6%

    =1, 500,000 * ((1.06) ^ (-5)) / 0.06

    = $6,318,545.68

    The equipment should not cost more than $6,318,545.68
Know the Answer?
Not Sure About the Answer?
Get an answer to your question ✅ “A local government awards a landscaping company a contract worth $1.5 million per year for five years for maintaining public parks. The ...” in 📙 Business if there is no answer or all answers are wrong, use a search bar and try to find the answer among similar questions.
Search for Other Answers