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Old 09-12-2011, 11:16 AM
Murphy314159 Murphy314159 is offline
Join Date: Feb 2010
Posts: 127
Default Investment Science Ch 2 problem 9

I can't seem to match the books answer for this problem:

A roof costs $20,000 and needs replaced every 20 years

The next time the roof will need replaced is 5 years.

i = 5%

What value would you assign the existing roof?

answer = 6,948
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Old 09-12-2011, 12:56 PM
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Willenium2010 Willenium2010 is offline
Join Date: Nov 2010
Location: Indiana
Posts: 1,951

Find annuity payment for 20 years, 5%, with PV of 20,000. This is 20000/(1/.05-1/.05/1.05^20) = 1,604.85 per year.

Now you only have 5 years remaining so find the PV of 1,604.85 per year at 5%. 1604.85*(1/.05-1/.05/1.05^5) = 6,948.17.
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