Question

Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $158.82 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $590,000 a month for this purpose. The firm earns 6 percent compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations? (Do not round intermediate calculations.)

Answer 1

Answer: 170.69

Explanation:

Given that,

Anticipated total cost (Future value) = $158.82 million

                                    = $158,820,000

Saving per month = $590,000

Interest received on savings = 6 percent (compounded monthly)

Future value = $158,820,000

$saving\ amount\times\frac{(1+\frac{r}{12} )^{n-1} }{\frac{r}{12}}$

$590,000\times\frac{(1+\frac{0.06}{12} )^{n-1} }{\frac{0.06}{12}}$

$\frac{(1.005)^{n-1}}{0.005}=269.1864$

Therefore,

n = 170.69 months

Company have to wait before expanding its operations for 170.69 months.