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ANTONII
2 months ago
5

A small business has determined that the machinery they currently use will wear out in 16 years. To replace the new machine when

it wears out, the company wants to establish a savings account today. If the interest rate on the account is 1.6 percent compounded quarterly and the cost of the machinery will be $280,000, how much will the company have to deposit today?
Business
1 answer:
marusya05 [3.7K]2 months ago
8 0

Answer:

Today's present value deposit = 216,886 (Approx)

Explanation:

Given:

Duration (n) = 16 years x 4 quarters = 64

Interest rate (r) = 1.6% = 0.016 / 4 = 0.004

Future value = $280,000

Present value =?

Calculation for today's necessary deposit:

Present\ value = \frac{Future\ value}{(1+r)^n}\\\\Present\ value = \frac{280,000}{(1+0.004)^{64}}\\\\Present\ value = \frac{280,000}{1.291}\\\\Present\ value = 216,886.135

Present value deposit today = 216,886 (Approx)

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