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Metalfab Pump and Filter Inc. estimates that the cost of steel bodies for pressure valves will increase by $2 every 3 months. If the cost for the first quarter is expected to be $80. What is the present worth of the costs for a 5-year time period at an interest rate of 1.1% per quarter?

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Answer:

Present value= $96.42

Explanation:

Giving the following information:

Metalfab Pump and Filter Inc. estimates that the cost of steel bodies for pressure valves will increase by $2 every 3 months. If the cost for the first quarter is expected to be $80.

First, we need to calculate the final cost at the end of the period:

n= 5*4= 20

Final cost= 80*(2*20)= 120

Now, we can calculate the present value:

PV= FV/(1+i)^n

PV= 120/ (1.011^20)= $96.42

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