A construction management company is examining its cash flow requirements for the next 7 years. The company expects to replace software and infield computing equipment at various times over a 7-year planning period. Specifically, the company expects to spend $6000 one year from now, $9000 three years from now, and $10,000 each year in years 6 through 10. What is the future worth in year 10 of the planned expenditures, at an interest rate of 12% per year?

Question

Business

Antoine Vazquez

6 May, 00:17

A construction management company is examining its cash flow requirements for the next 7 years. The company expects to replace software and infield computing equipment at various times over a 7-year planning period. Specifically, the company expects to spend $6000 one year from now, $9000 three years from now, and $10,000 each year in years 6 through 10. What is the future worth in year 10 of the planned expenditures, at an interest rate of 12% per year?

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Katherine Adams · Answer 1

Total expense = $104,022.6

Explanation:

Giving the following information:

The company expects to spend $6000 one year from now, $9000 three years from now, and $10,000 each year in years 6 through 10.

The interest rate is 12%.

We need to use the following formula:

FV = PV * (1+i) ^n

FV = 6000 * (1.12) ^9 = 16,638.47

FV = 9000 * (1.12) ^7 = 19,896.13

Total = $36,534.6

For the last three we need to use the following formula:

FV = {A*[ (1+i) ^n-1]}/i

A = annual deposit

FV = {10000*[ (1.12^3) - 1]}/0.12 = 67,488

Total expense = 67,488 + 36,534.6 = $104,022.6