Answer to Question #268104 in Economics of Enterprise for gerald

Question

P1,000,000.00 pesos is needed at the end of each year to maintain each building in Rizal Technological University in Mandaluyong. If money increases at 12% per annum in a investment, how much money need to invest directly so the local government of Mandaluyong can reduce the annual cost by P250,000? *

Answer 1

Solution:

Present value = $\frac{FV}{(1 + r)^{n} }$

FV = 750,000

r = 12% = 0.12

n = 1

Present value = $\frac{750,000}{(1 + 0.12)^{1} } = \frac{750,000}{1.12 } = 669,642.86$

Amount required to be invested directly to reduce the annual cost = P 669,642.86