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8 January, 03:30

An engineer analyzing cost data about hydrogen sulfide monitors discovered that the information for the first three years was missing. However, he knew the cost in year 4 was $1250 and that it increased by 5% each year thereafter. If the same trend applied to the first three years, the cost in year 1 was:

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  1. 8 January, 03:57
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    Find below full question:

    An engineer analyzing cost data about hydrogen sulfide monitors discovered that the information for the first three years was missing. However, he knew the cost in year 4 was $1250 and that it increased by 5% each year thereafter. If the same trend applied to the first three years, the cost in year 1 was:

    a. $1312.50

    b. $1190.48

    c. $1028.38

    d. $1079.80

    Option D,$ 1,079.80 is correct

    Explanation:

    The present value formula can be used to determine the cost in year one as follows:

    PV=FV * (1+r) ^-n

    FV is the future cost in year 4 which is $1,250

    r is the growth rate of cost per year which is 5%

    n is the duration of time involved, it is 3 because the difference between year 4 and year 1 is 3

    PV=$1250 * (1+5%) ^-3

    PV=$1250 * (1.05) ^-3

    PV=$1250*0.863837599

    PV=$ 1,079.80

    The cost of the hydrogen sulfide monitor in year one is $ 1,079.80

    In essence option D,$ 1,079.80 is correct
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