Question

8. Ina Guarnaschelli wants to install a pool with a changing cabana and an outdoor entertainment center at her home. A contractor estimated that the entire project would cost $85,000 to complete currently. Ina believes that she can save enough over five years so that she will only need to borrow 50% of the project's price. a. Ina expects the cost of the project to increase by 2.5% per year over the five years, what will be the total estimated cost of the project in five years? I/Y PV PMT FV MODE 5 0.025 85,000 Excel Formula (0.025,5, 0,5000,0 Your Answer 961169.70 CPT END

Please make sure my answers are correct.

Answer 1

Ans: Ina Guarnaschelli

a) Expected cost of the project in the end of the project = Present value of the project * (( 1+ rate of the interest )^time period)

= $ 85,000*( (1+0.025)^5

= $ 96,169.70

b) Deposit at the end of each month to meet the expected cost of the project financed by borrowings

So expected cost of project financed by borrowings = $96,169.70 \ 2

= $ 48,084.85

PMT Excel formula is (rate, number of period, present value,future value, end or beginning)

= (0.006,60,0,48084.85,0)

Monthly deposit = $ 668.16

There is mistake in above solution as Fair value is to be taken as 0 and future value is to be taken as $ 48,084.85.