Use tables and cash flow diagram: The energy costs of a company involved in powder coating...

Use tables and cash flow diagram: The energy costs of a company involved in powder coating of outdoor furniture are expected to increase at a rate of $400 per year. The cost at the end of the next year (year 1) is expected to be $13,000. How many years will it be from now before the equivalent annual cost is $16,000 per year, if interest is 8% per year?

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Expert Solution

Lets put the information given in the question

The cost is expected to increase 400 per year. So this is the pmt. pmt =400

Cost at the end of year 1 is 13000. So we can take this as pv.

Interest rate is given as 8%.

Let the number of year be n. At the end of year n, the cost is supposed to be 16000. So we can take this as fv.

Given all these details we can find n using the nper formula in excel.

=NPER(8%,400,-13000,16000,0)

=4.14

YOU can even use financial calculator to find the same. Just input the values shwon in the image in the calculator to find n. Give pv value as -13000 to get the correct answer.

Rahul Sunny answered 1 year ago

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