A new transmission in your truck will cost $9,500.00. luckily, it should reduce maintenance expense by $3,975.00 each year for the next 10 years. what is the npv of the transmission? use a discount rate of 10.70%

Question

Milo Montgomery

Business

20 March, 09:56

A new transmission in your truck will cost $9,500.00. luckily, it should reduce maintenance expense by $3,975.00 each year for the next 10 years. what is the npv of the transmission? use a discount rate of 10.70%

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Answers (1)

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Julio Aguirre · Answer 1

NPV stands for Net Present Value which is calculated through the equation,

NPV = C₀ + Ct / (1+r) ^t

where C₀ is the original price, Ct is the amount saved, r is the discount rate and t is time. Calculating the NPV,

NPV = ($9,500) + ($3,975) / (1 + 0.1070) ^10

NPV = $10,938.34

Thus, the net present value is approximately $10,938.34.