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The TerraMax truck currently being manufactured and field tested by Oshkosh Truck Co. is a driverless truck intended for military use. Such a truck would free personnel for non-driving tasks such as reading maps, scanning for roadside bombs, or scouting for the enemy.
If such trucks would result in reduced injuries to military personnel amounting to $15 million three years from now, determine the present worth of these benefits at an interest rate of 10% per year compounded semiannually.

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Answer:

The present worth of these benefits at an interest rate of 10% per year compounded semiannually is $11,193,231.

Explanation:

Future Value of Benefit = FV = 15 Million

Interest rate = r = 10% = 0.10 per year = 0.10 /2 = 0.05 semiannually

Number of years = 3 years

Compounding = Semiannually

Number of periods = n = 3 x 2 = 6

Present value of benefit is calculated using Following formula

PV = FV / ( 1 + r )^n

PV = $15,000,000 / ( 1 + 0.05 )^6

PV = $15,000,000 / ( 1.05 )^6

PV = $15,000,000 / 1.34

PV = $11,193,231

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