Answer:
6.67 years
Explanation:
The number of years for the firm to reach the desired value of $1.2 million can determined using the nper formula in excel as below:
=nper(rate,pmt,pv,-fv)
rate is the interest rate earns by the fund at 10% per year
pmt is the addition to the fund in each year which is $50,000
pv is the current amount in the fund which is $400,000
fv is the desired value of $1.2 million
=nper(10%,50000,400000,-1200000)= 6.67 years
It would take 6.67 years for the sinking fund to reach the desired value of $1,200,000
