Question

In: Accounting

Starr Company decides to establish a fund that it will use 5 years from now to...

Starr Company decides to establish a fund that it will use 5 years from now to replace an aging production facility. The company will make a $97,000 initial contribution to the fund and plans to make quarterly contributions of $48,000 beginning in three months. The fund earns 8%, compounded quarterly. (PV of $1, FV of $1, PVA of $1, and FVA of $1) (Use appropriate factor(s) from the tables provided. Round your "Table Factor" to 4 decimal places and final answer to the nearest whole dollar.)

What will be the value of the fund 5 years from now?

Table Values are Based on:
n =
i =
Present Value Table Factor Future Value
Initial Investment
Periodic Investments
Future Value of Fund

Solutions

Expert Solution

Table values are based on:
n= 20
i= 2%
Present Value Table Factor Future Value
Initial investment $       97,000      1.4859 $          1,44,132
Periodic investment $       48,000    24.2974 $       11,66,275
Future Value of fund $       13,10,408
Working:
# 1 Future Value of investment of 1 = (1+i)^n
= (1+0.02)^20
=      1.4859
# 2 Future value of annuity of 1 = (((1+i)^n)-1)/i
= (((1+0.02)^20)-1)/0.02
=    24.2974

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