Question 1183010: On average, it needs 250,000 dollars per year and an additional 600,000 dollars every 4 years for major repairs to maintain a certain three-storey office building. How much must be paid now to take care of these payments on a bank that offers 8% per year?
|I get confused on the interest rate, what will I use if solving for the "every four years"? Please help me..
Answer by Theo(13342)   (Show Source):
You can put this solution on YOUR website! every year you divide 250,000 by 1.08 raised to the power of the (year minus the start year).
every 4 years, you divide 600,000 by 1.08 raised to the power of the (year minus the start year).
example:
in year 1, 250,000 is divided by 1.08^1.
in year 2, 250,000 is divided by 1.08^2.
in year 3, 250,000 is divided by 1.08^3.
in year 4, 250,000 is divided by 1.08^4
in addition, .....
in year 4, 600,000 is divided by 1.08^4.
note that:
1.08 - 1 = .08
.08 * 100 = 8%.
1.08^4 = 1.36048896
1.36048896 - 1 = .36048896
.36048896 * 100 = 36.048896%
you do that for the number of years indicated.
they should be in increments of 4, since there is that additional charge every 4 years.
over 20 years, your present value will be equal to $3,761,847.55.
the following spreadsheet shows the calculations.
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