A company has some equipment that they know will be obsolete in five years. They expect, though, that it will have some recycling value, and the purchasing department (which handles disposals) thinks they’ll be able to get about $5,000 for it at that point. If interest rates are expected to average around 5% over that time period, what is the recycling value of the equipment in today’s dollars?
Present Value of Compound Interest: P = A/(1 + i)n A = $5,000, i = 5% = 0.05, n = 5 years
P = A/(1 + i)n ==> P = (5000)/(1 + 0.05)5 ==> P = $3917.63
Verify/Solve using TVM Solver - TI-84 Plus (Note: P = PV and A = FV)
* In TI-84 Plus: Click "App" ==> "Finance" ==> "TVM Solver (Calc)"
* Enter the following values:
N = 5
I% = 5
PV = $3917.63 <== Click: ALPHA + ENTER (SOLVE) to solve/see this solution (After filling the given info)
PMT = 0 (doesn't matter)
FV = -5000
P/Y = 1
C/Y = 1
PMT: END BEGIN (doesn't matter)