Question

John Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 5 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 5 years, by conducting some research online, John has developed the following estimates.

Engine Overhaul Estimated Cash Outflow			Probability Assessment
$340			10%
480			30%
840			50%
750			10%

Click here to view factor tables

How much should John Bowie deposit today in an account earning 9%, compounded annually, so that he will have enough money on hand in 5 years to pay for the overhaul? (Round factor values to 5 decimal places, e.g. 1.25124 and final answer to 0 decimal places, e.g. 458,581.)

Deposit amount

$enter the deposit amount in dollars rounded to 0 decimal places

Answer 1

Answer
Statement showing Computations
Engine Overhaul	Probability	Estimated overhaul after 5 years
Estimated Cash Outflow	Assessment
340	10%	$                                              34
480	30%	$                                            144
840	50%	$                                            420
750	10%	$                                              75
		$                                            673
Since this overhaul cost is after 5 years we need to determine the present value today
PresentValue = 673/(1.09)^5	437.40
Deposit amount	$                    437.40