A taxicab company maintain accurate records of the expenses for one of its automobiles from January 1, 1996 through January 1, 2002. It is found from the records, the annual operating expense is $4,000. The maintenance and repair costs are $500 for 1996, $1,000 for year 1997, $1,500 for year 1998, and so on. What is the net present cost of owning and operating the automobile; the initial price was $35,000 and the interest rate is 9%

$60,233

Explanation:

the net present cost of operating and owning a taxi:

purchase price = $35,000

1996 = ($4,000 + $500) / 1.09 = $4,128

1997 = ($4,000 + $1,000) / 1.09² = $4,208

1998 = ($4,000 + $1,500) / 1.09³ = $4,247

1999 = ($4,000 + $2,000) / 1.09⁴ = $4,251

2000 = ($4,000 + $2,500) / 1.09⁵ = $4,225

2001 = ($4,000 + $3,000) / 1.09⁶ = $4,174

total = $60,233

The net present cost is the present value of all the costs related to a project or investment. In this case, we must discount all the annual operating costs of the taxi by 9%.

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