Question

12.Transverse Crane Service will obtain a bonus at the end of a multi-year project if the job is completed on time. This bonus will amount to $100,000 or a bridge general maintenance project across the Hudson River. The company has the following investments and cash draws on the 9-year project: They invested $2,000,000 at the start of the project to cover expected costs. In year 2 they expect to withdraw $6,000,00. In year 3, they will receive a partial payment for $800,000. In year 5, they will have to withdraw $900,000, In year 6, they will need to withdraw $400,000, and in year 8 they will receive a payment of $1,800,000. The project will end in year 9 with no additional costs. How much will be in the account with an interest rate of 3%.

Answer 1

Solution :

Given : interest rate = 3%

                                = 0.03

Investment at the starting of the project = $2,000,000

Value of money at the end of year $2$ = $2000000 \times (1.03)^2 - 600000 = 1,521,800$

Value at  money the end of year $3$ = $1521800 \times 1.03 + 800000 = 2,367,454$

Value at  money the end of year $5$ = $2367454 \times (1.03)^2-900000=1,611,631.949$

Value at  money the end of year $6$ = $1611631.949 \times 1.03 - 400000=1,259,980.91$

Value at  money the end of year $8$ = $1259980.91 \times (1.03)^2 +1800000=3,136,713.74$

Value at  money the end of year $9$ = $3136713.74 \times 1.03 + 100000=3,330,815.16$