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Each year you need to power wash your deck. You can rent a power washer for $38 per day. If you go with this option, you will pay $38 each year starting today up to and including year 10 If you buy the power washer, you will pay $175 today and the power washer will last up to and including year 10 . If your investments earn 4% compounded annually, how much does it save you in present value terms to own the power washer

Respuesta :

facundobuzzetti

Answer:

You will save $133.21 by buying the washer.

Explanation:

Giving the following information:

Rent= $38 per day.

Number of years= 10 years

Buying price= $175

I will assume that you rent the washer one day each year.

First, we need to calculate the final value of renting the washer.

FV= {A*[(1+i)^n-1]}/i

A= annual pay= 38

i= 0.04

n= 10

FV= {38*[(1.04^10) - 1]}/ 0.04= 456.23

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 456.23/ 1.04^10= $308.21

You will save (308.21-175) $133.21 by buying the washer.

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