A couple wants to save for their daughter’s college expense. The daughter will enter college 8 years from now and she will need
$40,000, $41,000, $42,000 and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must
save each year until their daughter goes to college (for 8 years)?

Related MCQs

• A couple wants to save for their daughter’s college expense. The daughter will enter college 8 years from now and she will need $40,000, $41,000, $42,000 and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college (for 8 years)?
• A couple wants to save for their daughter’s college expenses. The daughter will enter college 8 years from now and she will need $40,000, $41,000, $42,000, and $43,000 in actual dollars for 4 school years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college (for 8 years)?
• You want to set aside a lump sum amount today in a savings account that earns 7% annual interest to meet a future expense in the amount of $10,000 to be incurred in 6 years. How much do you need to deposit today?
• You want to set aside a lump sum amount today in a savings account that earns 7% annual interest to meet a future expense in the amount of $10,000 to be incurred in 6 years. How much do you need to deposit today?
• A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)
• A manufacturing company is considering the purchase of a new CNC lathe, which will cost $60,000 and has an annual maintenance cost of $8,000. A few parts in the lathe need to be replaced once every 5 years to enable smooth running of the lathe. This would cost an additional $20,000 (once every 5 years). Assuming that the lathe would last 15 years under these conditions, what is the total equivalent cost (present value) of this investment at an interest rate of 12%? (Assume that there will be no appreciable salvage value at the end of 15 years.)
• A newly constructed water treatment facility cost $2 million. It is estimated that the facility will need renovating every 30 years at a cost of $1 million. Annual repairs and maintenance are estimated to be $100,000 per year. At an interest rate of 6%, determine the capitalized cost of the facility.
• A newly constructed water treatment facility cost $2 million. It is estimated that the facility will need renovating every 30 years at a cost of $1 million. Annual repairs and maintenance are estimated to be $100,000 per year. At an interest rate of 6%, determine the capitalized cost of the facility.
• A newly constructed water treatment facility cost $2 million. It is estimated that the facility will need renovating every 30 years at a cost of $1 million. Annual repairs and maintenance are estimated to be $100,000 per year. At an interest rate of 6%, determine the capitalized cost of the facility.
• You just purchased a pin inserting machine to relieve some bottleneck problems that have been created in manufacturing a PC board. The machine cost $56,000 and has an estimated service life of 5 years. At that time, the estimated salvage value would be $5,000. The machine is expected to operate 2,500 hours per year. The expected annual operating and maintenance cost would be $6,000. If your firm’s interest rate is 15%, what would be the machine cost per hour?