A manufacturer of prototyping equipment wants to have $3,000,000 available 10 years from now so that a new product line can be i

Question

3 years ago

14

A manufacturer of prototyping equipment wants to have $3,000,000 available 10 years from now so that a new product line can be i

nitiated. If the company plans to deposit money each year, starting one year from now, the equation that represents how much the company is required to deposit each year at 10% per year interest to have the $3,000,000 immediately after the last deposit is

Business

1 answer:

diamong [38] · Answer 1 · 2022-06-06T04:53:54+03:00

Answer:

annual savings = future value / [(1 + r)ⁿ - 1 ] / n

annual savings = $3,000,000 / [(1 + 0.1)¹⁰ - 1 ] / 0.1

annual deposit = $188,236.18

Explanation:

this is an ordinary annuity

future value = $3,000,000

interest rate = 10%

periods = 10

using the future value of an annuity formula, annual deposit = future value / annuity factor

FV annuity factor, 10 periods, 10% = 15.937

annual deposit = $3,000,000 / 15.937 = $188,241.20

instead of using annuity factors, you can solve this equation:

annual deposit = future value / [(1 + r)ⁿ - 1 ] / n

annual deposit = $3,000,000 / [(1 + 0.1)¹⁰ - 1 ] / 0.1

annual deposit = $188,236.18

Both answers are very similar, the difference is only 0.00267%