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
