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A security company offers to provide CCTV coverage for a parking garage for ten years for an initial payment of $50,000 and additional payments of $30,000 per year. What is the equivalent annual annuity of this deal, given a cost of capital of 5%

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tanseershar

Answer:

$36,475

Explanation:

P=R(1-(1+i)^-n)/i

Where R=30,000

i=5%

n=10 years

P=30,000(1-(1+.05)^-10)/.05=$231,652

P=231,652+50,000=281,652

Now EAC=NPV*i/(1-(1+i)^-n)

EAC=281,652*.05/(1-(1+.05)^-10)

EAC=$36,475

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