An oil-drilling company figures that it must spend $30.000 for an initial supply of drill bits and that it must spend $10,000 every month to replace the worn-out bits. What is the present value of the cost of the bits if the company plans to be in business indefinitely and discounts payments at 1% per month?
Required:
Using future value and present value techniques, including perpetuities to solve a variety of realistic problems, we give no hints as to the specific calculation with the problems.