What is the present worth of a machine if its return is $3500 per year for eight years, if the effective annual interest rate is taken to be 8%.
My answer is: $20,113.....is this correct?
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what did you do to get the answer?
my answer is: $6.478
return is not the principal amount. It is the profit on the principal amount at the rate of return. You are wrong, Nancy
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if return use this;
Well, first I found a factor that would convert the cash flow pattern from an annuity to present value. The factor I came up with is [((1+0.08)^(8))-1]/[0.08(1+0.08)^(8)], which equals 5.747. Then I multiplied that factor by my intitial annuity. So, 5.747(3500)=$20,113.23