Question

de sanita NUUJ Walldyerlal Accounting res Sitem ordinary expenditures?. In iusta few words what i OOO 100 STOOM A ETSC301, W20 Exam 1 Study Guide Problem 3 Assume your company estimates that it must perform some facilities upgrades 25 years from now. The anticipated costs are $30 million. The company will sell an older facility, 15 years from now, for $10 million, and deposit that money into an account that pays 9% interest. It will also deposit enough money into the same account today, so that today's deposit plus the revenue from the sale, deposited 15 years from now, will equal $30 million, 25 years from now. Calculate the amount that must be deposited today. (10 Points) 30 m Pl.com 25 F = 30 m = P (6,9%,25) + 10m ( 2 , 9%, 10).

please be detailed

Answer 1

In order to find time value of money in this case you need to find 2 things here in following order

1. future value of $10 million you get after 15 years from now. i.e 10 years after what that amount will earn you.

2. after finding out above, deduct the above amount from $30 million to find what will be the rest of amount you need in order install the new facility. so find out present value of that amount.

refer handwritten notes
Invest today $644,025 after is year, deposit the sale money $ 10 million at 9% to gut $23674000

DO Present Value. = Future Value (1+r)n Br= the periodic rate of return n = number of years. Future Value = value needed when after a certain period of time Future Value - Present Value X (1+r)n How muuch money today will earn future. put in the bank at some point in Reference, we construct our With this problem. Toda 15yrs: 0 25 475 after Reducing sell of old reducing facility. you want $ 6326,000 i.e Future Value . 8= 9% n=25%. We have $10 million here you have to find out Future Value of $ 10 million you have, we what it will earn you cfter 10 more years, PV = $ 10m r = 9%, nato We Want $30 million FV = $30m 8- 9% n=25yn.

By selling older facility you earn $ 10 million, deposit in Bank for 10 years at 9%. Interest rate. So, what will be the value after to you years you will get Future Value = PV x (1+r)n = 10000000 x C1+0.09) '° 10000.000 X 25 sel 2.3674 (decinal four =$23674,000 taken therefore, aytar 25 years, due to selling older facility you will get $23674,000 Remaining amount you will have to get deposit today in Bank. je 3000 0000 - 23674000 = $6326,000 What you have to deposit today to get the $6326,000 in 25 years. Present Value = FV - 632 6000 (1+r)n (1 +0.09)25 6326000 940 9.8226 -$644,025 (decimal, place tak 4) (Answer may slightly differ because of decimal places