# Starr Company decides to establish a fund that it will use 10 years from now to replace an aging production fa?

Starr Company decides to establish a fund that it will use 10 years from now to replace an aging production facility. The company will make a \$100,000 initial contribution to the fund and plans to make quarterly contributions of \$50,000 beginning in three months. The fund earns 12%, compounded quarterly.

What will be the value of the fund 10 years from now? (Round "FV factor" to 4 decimal places and final answer to nearest dollar amount)

help lol

Relevance

Value of the initial \$100k, 10 years from now...(to reflect the quarterly nature of compounding, divide rate by 4, multiply n years times 4)

= 100,000(1 + 0.12/4)^4*10

= 100,000(1.03^40)

= \$326,203.78...oops forgot to round 1.03^40 to 4 places...=3.2620, so FV = \$326,200.00

Value of the \$50k quarterly pmts, use FV ordinary annuity...

FVoa = PMT [((1 + i)^n - 1) / i]

n = 40 , i = 0.12/4 = 0.03

=50,000[1.03^40 / 0.03]

rounding to 4 places...

= 50,000[2.262 / 0.03]

= 50,000[75.40]

= 3,770,000

Add the two together: FV = \$4,096,200