The company wants to have $36 million for a plant expansion 5 years from now. If...

The company wants to have $36 million for a plant expansion 5 years from now. If the company has already set aside $15 million in an investment account for the expansion, how much more must the company add to the account next year (i.e., 1 year from now) so that it will have the $36 million 5 years from now? The account earns interest at 10% per year, compounded quarterly

Solutions

Expert Solution

Future Value required at the end of year 5 = $36,000,000

- AMount set side today = 15,000,000

Calculating the Amount need to be set aside 1 year from now such that firm accumulate the future value:-

Where,

C1 = Amount set side today = $15,000,000

n1 = no of years for C1 = 5 years

r = Interest rate = 10%

m = no of times compounding in a year = 4 (compounded Quarterly)

C2 = Amount set side 1 year from now

n2 = no of years for C1 = 4 years

C2 = $7,693,304.25

So, the Amount set side 1 year from now is $7,693,304.25

If you need any clarification, you can ask in comments.

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jeff jeffy answered 1 year ago

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