The company San Marcos, S.A., will need $ 500,000 in 10 years for a replacement investment...

The company San Marcos, S.A., will need $ 500,000 in 10 years for a replacement investment projected for that date. The company's management plans to save this amount through a series of annual payments. They specifically plan to save $ 4,000 the first year and then increase those payments according to an arithmetic gradient. If the company's interest rate (discount) is 20% per year each / year, how big will the gradient (G) have to be for San Marcos to reach its goal?

Expert Solution

We use the excel functions to solve the problem

First we take a random gradiant of 10%. I.e every year payment increases by 10%

We get the following schedule of investments year on year

We observe that if investment is increased by 10%, closing balance is 172703.71

Hence we need to find such % increase so that investment is 500,000

We use the goal seek function such that closing balance at end of 10 years is 500000 and growth (Cell G40) be the sensitive cell

We get as follows:

Hence every year we will increase our investment by 37.86%.

jeff jeffy answered 1 year ago

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