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topjm [15]
3 years ago
5

Cash Flow Equivalences. Southwestern Moving and Storage wants to have enough money to purchase a new tractor-trailer in 5 years

at a cost of $290,000. If the company sets aside $100,000 in year 2 and $75,000 in year 3, how much will the company have to set aside in year 4 in order to have the money it needs if the money set aside earns 9% per year?
Business
1 answer:
vagabundo [1.1K]3 years ago
7 0

Answer:

They must set aside $65,494.95 at the end of year 4.

Explanation:

Giving the following information:

Southwestern Moving and Storage wants to have enough money to purchase a new tractor-trailer in 5 years for $290,000. If the company sets aside $100,000 in year 2 and $75,000 in year 3.

Interest rate= 9%

<u>We will assume that the money gets set aside at the end of each period.</u>

First, we need to calculate the accumulated money of the first two investments using the following formula:

FV= PV*(1+i)^n

Year 2: FV= 100,000*(1.09)^3= 129,503

Year 3: FV= 75,000*(1.09)^2= 89,107.5

Total= $218,610.5

Difference= 290,000 - 218,610.5= 71,389.5

Final value= 71,389.5

We need to find the present value:

PV= FV/(1+i)^n

PV= 71,389.5/(1.09)= 65,494.95

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