Part I
A) Your company will need to replace a machine in 6 years because the current one will eventually become outmoded and, compared to your competition, your production will be lagging as a result. FIRST, what is the value of $85,000 if it is invested at 4.5% compounded annually for six years to have a down payment for a new machine? Answer _________________
B) Next, if you can invest the money to compound quarterly, what will be the end result? (Remember you must adjust the nper and the rate, multiply the # of years by 4 and divide the annual rate by 4.) Final Answer _________________
C) Finally, if you can compound your money monthly, what will be the end result? Make the adjustments to nper and rate! Final Answer ________________
How much money would you have to invest now at 6% compounded annually to have $35,000 available for the purchase of a new company car 5 years from now? Final Answer _________________
A small savings account intended for the purpose of replacing office computers was opened with an investment of $12,000, 6 years ago. The ending balance in the account is $13,900. If interest was compounded annually, what rate was earned on the account? SHOW 4 decimal places for accuracy. Final Answer _________________
You are a wise business owner and place $17,500 in a special contingency fund for future investment in plant and equipment. In 8 years the fund will be worth $22,580. What is the rate of return on the fund if we assume annual compounding? SHOW 4 decimal places for accuracy.
Final Answer _________________
Referring back to 4 above, as opposed to putting in 1 amount now, you choose to put aside $2500 in the fund every year (pmt) for the next 8 years into an account that earns 3.25% each year. How much will the money be worth in 8 years? Final Answer _________________
Essay: Which is the wiser, or more manageable option for contingency funding, based on your answers - option 4 or 5 and WHY?