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

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  • 7 years ago
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    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

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