Madera Iron Sculpting is planning on replacing one of its robotic welders in five years by making a one-time deposit of $20,000 today and four yearly contributions of $5,000 beginning at the end of year 1.The deposits will earn 10% interest.How much money will Sierra have accumulated at the end of five years to replace the welder?

Question

Quizplus · Accepted Answer

Future Value = Present Value * Interest Factor
Future Value = $20,000 * 1.6105 = $32,210
1.6105 is the interest factor on the Future Value table; n = 5; i = 10%
Future Value of an Annuity = Annuity * Interest Factor
Future Value of an Annuity = $5,000 * 4.6410 = $23,205
4.6410 is the interest factor on the Future Value of an Annuity table; n = 4; i = 10%
Accumulated Funds = $32,210 + $23,205 = $55,415

Madera Iron Sculpting Is Planning on Replacing One of Its