SOLUTION: In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. Management estimates that it will need up to $450,000 to cover all related

Question 1136312: In five years, the company plans to undertake a major upgrade to its servers and other IT infrastructure. Management estimates that it will need up to $450,000 to cover all related costs; however, as a fairly young company, the goal is to pay for the upgrade with cash and not to take out loans. Right now, you have $300,000 in a bank account established for Capital Investments. This account pays 4% interest, compounded annually. A member of the finance department has approached you with an investment opportunity for the $300,000 that covers a five-year period and has the following projected after-tax cash flows:
Year 1 Year 2 Year 3 Year 4 Year 5
90,000 115,000 135,000 110,000 90,000
How much money will be in the bank account if you leave the $300,000 alone (earning 4% compounded
interest) until you need it in five years?
Answer by Theo(13342) (Show Source): You can put this solution on YOUR website!
if you leave the 300,000 in a bank account that pays 4% interest, compounded annually, you will have 300,000 * 1.04 ^ 5 = 364,995.87 in the account at the end of the 5 year investment period.

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