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(ignore income taxes in this problem.) peter wants to buy a computer which he expects to save him $4,000 each year in bookkeeping costs. the computer will last for five years, and at the end of five years it will have no salvage value. if peter's required rate of return is 12%, what is the maximum price peter should be willing to pay for the computer now?

Respuesta :

BlueSky06
To answer this item, we should be able to calculate for the present worth of the item that is expected to give an annuity of $4,000.

The equation that would allow us to calculate for the present worth from simple annuity is,

                                P = A x ((1 + i)^n - 1) / i(1 + i)^n))

Substituting the known value for A, i and n.

                               P = ($4000) x ((1 + 0.12)^5 - 1)/ 0.12(1 + 0.12)^5))

                               P = 14,419

Thus, Peter would have to be willing to pay for the computer for $14,419. 
marandaleann728

Answer:

14419

Explanation:

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