e Department of Traffic Security of a city is considering the purchase of a new drone for aerial surveillance of traffic on its most congested streets. A similar purchase 4 years ago cost $950,000. At an interest rate of 7% per year, what is the equivalent value today of the previous $950,000 expenditure?

Question

Estrella Mcneil

Business

2 October, 06:46

e Department of Traffic Security of a city is considering the purchase of a new drone for aerial surveillance of traffic on its most congested streets. A similar purchase 4 years ago cost $950,000. At an interest rate of 7% per year, what is the equivalent value today of the previous $950,000 expenditure?

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Answers (1)

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Ashleigh · Answer 1

The equivalent value of the expenditure today is = $1,245,256.21

Explanation:

The equivalent today of the 950,000 would be the future value compounded at 7% per year.

FV = PV * (1+r) ^n

FV - ?, PV - value 4 years ago, n - number of years, r - rate of return

PV - 950,000, n - 4, r-7%

FV = 950,000 * (1.07^4) = 1,245,256.21

The equivalent value of the expenditure today is = $1,245,256.21