Question

The expansion plans of IUKL call for the/company to add capacity for a new programs in 6 years. The company wants to have RM500,000, available before it announces the program. If A the company sets aside RM60,000 now and RM95,000 in year 2, what uniform annual amount -> will it have to put in an account in years 3 through 5 to have the RM500,000? Assume the account earns interest at 9% per year COMPOUNDED MONTHLY.

plz solve in detail to get thums up

Answer 1

Amount kept today = RM 60,000

Amount in year 2 = RM 95,000

Let us assume the amount kept from year 3 through year 5 is RM A.

Interest rate = 9% compounded annually

Effective rate of interest = (1 + 0.09/12)¹² - 1 = 0.0938

Rate of interest = 9.38% per annum

Here the company will start the project in the 6th year. Therefore, the amount will be required at the end of year 5 and at the beginning of year 6.

The future value is RM 500,000. Equate it to the above equation

Here I have considered the firm will invest at the end of year 5 and beginning of year 6. As it is mentioned the firm will invest for the new program in year 6.

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