A firm needs to replace most of its machinery in 7 years at a cost of...

A firm needs to replace most of its machinery in 7 years at a cost of $450,000. The company wishes to create a sinking fund to have this money available in 7 years. How much should the monthly deposits be if the fund earns 5% compounded monthly?

Expert Solution

Future value of annuity=Annuity[(1+rate/12)^(12*time period)-1]/(rate/12)

450,000=Annuity*[(1+0.05/12)^(12*7)-1]/(0.05/12)

450,000=Annuity*[(1+0.004166667)^(84)-1]/0.004166667

450,000=Annuity*[(1.004166667)^(84)-1]/0.004166667

450,000=Annuity*[1.41803609-1]/0.004166667

450,000=Annuity*100.328654

Annuity=450,000/100.328654

=$4485.26(Approx)

jeff jeffy answered 2 years ago

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