Question

Major overhaul expenses of $3000 each are anticipated for a large piece of equipment. The

expenses will occur at EOY four and will continue every three years thereafter up to and including year 13.

If the interest rate is 6% per year, What is the present equivalent of the overhaul expenses at time 0?

What is an annual equivalent expense during only years 5–13?

Answer 1

Year	Over Hauling expenses	PVF@6%	Disc CF
1	$                                             -	0.9434	$                     -
2	$                                             -	0.8900	$                     -
3	$                                             -	0.8396	$                     -
4	$                                 3,000.00	0.7921	$         2,376.28
5	$                                             -	0.7473	$                     -
6	$                                             -	0.7050	$                     -
7	$                                 3,000.00	0.6651	$         1,995.17
8	$                                             -	0.6274	$                     -
9	$                                             -	0.5919	$                     -
10	$                                 3,000.00	0.5584	$         1,675.18
11	$                                             -	0.5268	$                     -
12	$                                             -	0.4970	$                     -
13	$                                 3,000.00	0.4688	$         1,406.52
PV of Over hauling expenses	$         7,453.15

Annual equivalent expense during only years 5–13

Year	Over Hauling expenses	PVF@6%	Disc CF
5	$                                             -	0.7473	$                     -
6	$                                             -	0.7050	$                     -
7	$                                 3,000.00	0.6651	$         1,995.17
8	$                                             -	0.6274	$                     -
9	$                                             -	0.5919	$                     -
10	$                                 3,000.00	0.5584	$         1,675.18
11	$                                             -	0.5268	$                     -
12	$                                             -	0.4970	$                     -
13	$                                 3,000.00	0.4688	$         1,406.52
PV of Over hauling expenses	$         5,076.87
Annual Equivalent expenses	$            564.10

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