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27 December, 06:06

d) The owner of a cemetery plans to offer a perpetual care service for grave sites. The owner estimates that it will cost $150 per year to maintain a grave site. If the interest rate is 8.50%, what one-time fee should the owner charge for the perpetual care service

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  1. 27 December, 08:57
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    The one time fee that the owner should charge is $1764.71

    Explanation:

    To calculate the one time fee, we take this as a perpetuity and calculate the value or price of the perpetuity based on the fututre cash flows discounted to today's price by a certain dicount rate.

    The discount rate is taken as 8.5% which is also the market interests rate.

    The formula for the value/price of the perpetuity is,

    Value / Price = Cash flow / Discount rate

    Value / Price = 150 / 0.085

    Value / Price = $1764.705 rounded off to $1764.71
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Home » Business » d) The owner of a cemetery plans to offer a perpetual care service for grave sites. The owner estimates that it will cost $150 per year to maintain a grave site. If the interest rate is 8.
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