Question

Fastenings Co. produces metal rivets and anticipates purchasing additional machines to build its operations over the next four years. The costs for each of the next four years are given below.

Year	Cost
1	$75,000
2	$48,000
3	$120,000
4	$80,000

Fastenings Co. currently has a cash surplus and would like to set aside money to ensure that it can purchase these machines. Assuming that the money is placed into a savings account that earns 3% interest compounded annually, how much should Fastenings Co. set aside now to ensure it can cover the cost of the machines it would like to purchase?

Answer 1

ANSWER:

i = 3%

Cost to be aside by fastenings co. = cost in year 1(p/f,i,n) + cost in year 2(p/f,i,n) + cost in year 3(p/f,i,n) + cost in year 4(p/f,i,n)

Cost to be aside by fastenings co. = 75,000(p/f,3%,1) + 48,000(p/f,3%,2) + 120,000(pf,3%,3) + 80,000(p/f,3%,4)

Cost to be aside by fastenings co. = 75,000 * 0.9709 + 48,000 * 0.9426 + 120,000 * 0.9151 + 80,000 * 0.8885

Cost to be aside by fastenings co. = 72817.5 + 45,244.8 + 109,812 + 71,080

Cost to be aside by fastenings co. = 298,954.3

so the money that should be set aside by fastenings co. is $298,954.3