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What is the expected monthly payment for your business

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Question - You oversee assessing the cost of a new boiler for a building on campus. The boiler costs $2.5 million dollars. The boiler requires maintenance every month and the monthly contract is $80 per month. This ensures that if there is a mechanical problem with the boiler the manufacturer will fix it during its 20-year life. The boiler has a salvage value of $15,000 at the end of 20 years and the interest rate is 7%.

1) Draw the cash flow diagram.

2) What is the total present value of the boiler?

3) The State of Florida will kick in 10% of the PV of the boiler to help cover the initial cost. How much will the State kick in as a lump sum to help cover the costs of a new boiler?

4) The manufacturer has sweetened the deal to say that interest will not be applied to the loan payments for the first year. Payments will be made monthly, and the loan will have an 7% interest rate compounded monthly. What is the expected monthly payment for your business after the state funds are applied to pay off the boiler in 20 years?

Reference no: EM133149229

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