SOLUTION: Express line transport ltd buys an asset with a life of five years.At the end of five years,the asset will be replaced and the replacement cost of the asset is expected to be k20 m
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Question 1176977: Express line transport ltd buys an asset with a life of five years.At the end of five years,the asset will be replaced and the replacement cost of the asset is expected to be k20 million.the company has made a decision to provide for this commitment by setting up a sinking fund into which equal annual investments will be made.the first payment into the sinking fund will be made immediately.the fund will earn annual interest of 15% and interest will be paid annually,at the end of each year.calculate the annual investment required in order to finance the asset replacement in five years time
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
you need 20 million 5 years from now.
using the financial calculator at https://arachnoid.com/finance/index.html, your answer will be 2,579,400.91, rounded to the nearest penny.
that's how much will need to be invested at the beginning of each year for 5 years so that you can have 20,000,000 at the end of the 5 year period.
the inputs to that calculator are shown below:
the output from that calculator is shown below:
the yearly cash flows are shown below:
the pmt amount of -100 was already there and wasn't deleted because the output replaced that after clicking on pmt to get the result.
the yearly cashflows are computed as follows:
for end of year 0, the amount is the calculated payment.
for end of the next year, that amount is multiplied by 1.15 and the calculated payment is then added to it.
this continues end of year over end of year until the end of last year where the payment amount for that year is 0.
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