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17 June, 18:50

McClary Tires plans to save $20,000, $25,000, $27,500, and $30,000 at the end of each year for Years 1 to 4, respectively. If it earns 3.3 percent on its savings, how much will the firm have saved at the end of Year 4

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Answers (2)
  1. 17 June, 19:09
    0
    Answer: $107,130.78

    Explanation:

    Given the following;

    Cash flow (CF)

    CF1 $20,000

    CF2 $25,000

    CF3 $27,500

    CF4 $30,000

    Discount rate (r) = 3.3% = 0.033

    Taking the cash for each year and finding the future value using the formula

    FV = CF * (1 + r) ^n

    WHERE

    FV = future value

    CF = Cashflow

    r = interest rate = 0.033 for all 4 years

    t = Time (0 to 3)

    FV = (CF1 * (1+r) ^3) + (CF2 * (1+r) ^2) + (CF2 * (1+r) ^1) + CF3

    FV = $20,000 * (1.033) ^3 + $25,000 * (1.033) ^2 + $27,500*1.033 + $30,000

    FV = $22046.05874 + $26677.225 + $28407. 50 + $30000 = $107,130.78
  2. 17 June, 20:42
    0
    Total = $107,130.79

    Explanation:

    Giving the following information:

    McClary Tires plans to save $20,000, $25,000, $27,500, and $30,000 at the end of each year for Years 1 to 4, respectively.

    The discount rate is 3.3%.

    To calculate the future value, we need to use the following formula for each cash flow:

    FV = PV * (1+i) ^n

    Cf1 = 20,000*1.033^3 = 22,046.06

    Cf2 = 25,000*1.033^2 = 26,677.23

    Cf3 = 27,500*1.033 = 28,407.5

    Cf4 = 30,000

    Total = $107,130.79
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