The present value of discounted 5 year costs

[zdgibbs]

I can't provide any work, because I don't know how to set up this problem. I don't just want the answer (though that will help to check my own work). I want to know how to do it. So here is the question.

Assume that you are asked to review the costs of a 5-year technology upgrade project for the Cranberry Schools. After doing a careful review, you obtain the following costs:

5-year technology upgrade
Year 1: $12,000
Year 2: $12,500
Year 3: $21,000
Year 4: $16,000
Year 5: $31,000

What is the present value of this stream of costs for both a 5% discount rate.

I think I'm confused about present value and discounting.

Thanks for helping - I'm really stuck.

Zeda.

 

[Denis]

5-year technology upgrade
Year 1: $12,000
Year 2: $12,500
Year 3: $21,000
Year 4: $16,000
Year 5: $31,000

What is the present value of this stream of costs for both a 5% discount rate.

PV formula: P = F / (1+i)^n : F = Future value, i = interest rate, n = number of periods
Example: 1200 due in 3 years, 7% rate: P = 1200 / 1.07^3 = 979.557452...
Another way to look at that: 979.56 deposited now will accumulate to 1200 over 3 years if rate = 7%

So yours will be:
12000/1.05^1 + 12500/1.05^2 + 21000/1.05^3 + 16000/1.05^4 + 31000/1.05^5
I'll leave you the pleasure of wrapping it up!

 

[zdgibbs]

That works great! Thanks so much.
:mrgreen: