1) A machine costs $20,000 today and has an estimated scrap cash value of $2000
ID: 1177851 • Letter: 1
Question
1) A machine costs $20,000 today and has an estimated scrap cash value of $2000 after eight years. Inflation is 8% per year. The effective annual interest rate earned on money invested is 8%. How much needs to be set aside each year to replace the machine with an identical model eight years from now?
2) A young woman plans to retire in 30 years. She intends to contribute the same amount of money each year to her retirement fund. The fund earns 10% compounded annually. She would like to withdraw $100,000 each year for 20 years, starting 1 year after the last contribution is made. Approximately how much money should she contribute to her retirement fund each year?
Explanation / Answer
1) $3290
2)$5200
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