The company wants to have $36
The company wants to have $36 million for a plant expansion 5years from now. If the company has already set aside $15 million inan investment account for the expansion, how much more must thecompany add to the account next year (i.e., 1 year from now) sothat it will have the $36 million 5 years from now? The accountearns interest at 10% per year, compounded quarterly
Answer:
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 suchthat 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 (compoundedQuarterly)
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
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