An electricity company has the opportunity to use natural gas to generate electricity at a cost of $30 per unit in 2 years. The current market rate of interest is 4 percent. The present value of this cost is about

Question

Quizplus · Accepted Answer

The present value of a future cost or investment can be calculated using the formula PV = FV / (1 + r)^n, where PV is the present value, FV is the future value, r is the interest rate, and n is the number of periods. Plugging in the given values: PV = $30 / (1 + 0.04)^2 = $30 / 1.0816 ≈ $27.73, which rounds to about $28.

An Electricity Company Has the Opportunity to Use Natural Gas