Question

Word Problem 20-24 [LU 20-3(1)] A local Dunkin' Donuts franchise must buy a new piece of equipment in 6 years that will cost $95,000. The company is setting up a sinking fund to finance the purchase. What will the quarterly deposit be if the fund earns 12% interest? (Do not round intermediate calculations. Round your answer to the nearest cent.) Quarterly deposit

Answer 1

The amount is computed as shown below:

Future value = quarterly deposit x [ [ (1 + r)ⁿ – 1 ] / r ]

r is computed as follows:

= 12% / 4 (Since the deposits are quarterly, hence divided by 4)

= 3% or 0.03

n is computed as follows:

= 6 x 4 (Since the deposits are quarterly, hence multiplied by 4)

= 24

So, the amount will be as follows:

$ 95,000 = quarterly deposits x [ [ (1 + 0.03)²⁴ - 1 ] / 0.03]

$ 95,000 = quarterly deposits x 34.42647022

quarterly deposits = $ 95,000 / 34.42647022

quarterly deposits = $ 2,759.50 Approximately

Feel free to ask in case of any query relating to this question