Your firm wants to save $250,000 to buy some new equipment three years from now. The plan is to set aside an equal amount of money on the first day of each year starting today. The firm can earn a 4.7% rate of return. How much does the firm have to save each year to achieve their goal?

Question

Quizplus · Accepted Answer

The correct answer is A.The firm needs to save $75,966.14 each year to achieve their goal. This is calculated using the following formula:PV = FV / (1 + r)^nwhere:PV = present valueFV = future valuer = interest raten = number of yearsIn this case, the firm wants to save $250,000 in three years, so the FV is $250,000. The interest rate is 4.7%, so r = 0.047. The number of years is three, so n = 3.Plugging these values into the formula, we get:PV = $250,000 / (1 + 0.047)^3PV = $250,000 / 1.1525PV = $216,981.13This means that the firm needs to save $216,981.13 today in order to have $250,000 in three years. However, the firm is planning to save an equal amount of money on the first day of each year starting today. So, the amount that the firm needs to save each year is:$216,981.13 / 3 = $75,966.14

Your Firm Wants to Save $250,000 to Buy Some New