Finding the Rate That Equalizes the Present and Future Values
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Ralph knows that he is going to have to replace his roof soon. If he has the roof replaced now, it will cost $16,000. He could wait 4 years, but it will then cost him $28,000. At what rate will these options cost the same? This is also known as the break-even point. (Allow two decimals in the percentage but do not enter the % sign.)
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Solution Summary
This solution illustrates how to identify the components of a time value of money problem and how to use Excel to find the rate that equalizes the present and future values.
Solution Preview
Using Excel, we identify the present value (PV) as -$16,000. (We use a negative because Excel requires that PV and FV, or PV and PMT, or PMT and FV be opposite symbols.) The future value (FV), which is what ...
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