Answer to Question #240587 in Civil and Environmental Engineering for Alan Enrico V Tuib

Question #240587
Vu Technology Corp just purchased new disaster simulation software for $10,000 now and having
annual payments per year for 10 years starting from now for annual upgrades. If the interest rate is 2%
per month
1) What is the annual worth of the payments?
2) What is the worth of the payments in the 10th year?
1
Expert's answer
2021-09-24T02:13:08-0400

Part a) NPV = (-50,000 + 30,000) + (30,000/1.07) = $8,037.38


Part b) NPV = (-50,000 + 30,000) + (30,000/1.10) = $7,272.73


Explanation

Since, in each case, the NPV is higher than the NPV of the investment


($7,143), You can also think of it another way. The true


opportunity cost is what you could sell it for, i.e., $58,037 (or


$57,273). 



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