What is the present worth of a machine if its return is $3500 per year for eight years, if the effective annual interest rate is taken to be 8%.

My answer is: $20,113.....is this correct?

Question

What is the present worth of a machine if its return is $3500 per year for eight years, if the effective annual interest rate is taken to be 8%.

My answer is: $20,113.....is this correct?

anonymous · Answer

what did you do to get the answer?

anonymous · Answer

p=3500(1+0.08)^8
my answer is: $6.478

anonymous · Answer

return is not the principal amount. It is the profit on the principal amount at the rate of return. You are wrong, Nancy

anonymous · Answer

if return use this;
p=3500(1-0.08)^8

anonymous · Answer

$ 1.796.27

anonymous · Answer

huh?

anonymous · Answer

Well, first I found a factor that would convert the cash flow pattern from an annuity to present value. The factor I came up with is [((1+0.08)^(8))-1]/[0.08(1+0.08)^(8)], which equals 5.747. Then I multiplied that factor by my intitial annuity. So, 5.747(3500)=$20,113.23

anonymous · Answer

sounds right to me.