A major ball field is being considered to be built in a metropolitan by a High Tech company at a cost of $50M. It is estimated that the annual maintenance cost will be $100K. The construction company recommends a major renovation every 50 years at a cost of $10M. If the corporation wants to set up a trust fund to pay for this ball field expense for years to come, what should this amount be at an interest rate of 6%

Question

Addison Snow

Business

13 September, 22:38

A major ball field is being considered to be built in a metropolitan by a High Tech company at a cost of $50M. It is estimated that the annual maintenance cost will be $100K. The construction company recommends a major renovation every 50 years at a cost of $10M. If the corporation wants to set up a trust fund to pay for this ball field expense for years to come, what should this amount be at an interest rate of 6%

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Taryn Glover · Answer 1

If the corporation wants to set up a trust fund to pay for this ball field expense for years to come, the amount should be $52,240,714.40

Explanation:

According to the given data we have the following:

Cost of Project = $50,000,000

Annual Maintenance Cost = $100,000

Present Value of Annual Maintenance Cost = $100,000 / 0.06

Present Value of Annual Maintenance Cost = $1,666,666.67

The Renovation is required every 50 years at a cost of $10,000,000

Therefore, Present Value Renovation = $10,000,000/1.06^50 + 10,000,000/1.06^100 +

Present Value Renovation = $ (10,000,000/1.06^50) / (1 - 1/1.06^50)

Present Value Renovation = $10,000,000 / (1.06^50 - 1)

Present Value Renovation = $574,047.73

Therefore, Total Present Value = $50,000,000 + 1,666,666.67 + 574,047.73

Total Present Value = $52,240,714.40

If the corporation wants to set up a trust fund to pay for this ball field expense for years to come, the amount should be $52,240,714.40