A Firm needs to replace most of its machinery in five years at a cost of $500,000. The company wishes to create a sinking fund to have this money available in five years. How much should the quarterly deposits be if the fund earns 8%

Question

Trevor Kennedy

Business

28 May, 09:36

A Firm needs to replace most of its machinery in five years at a cost of $500,000. The company wishes to create a sinking fund to have this money available in five years. How much should the quarterly deposits be if the fund earns 8%

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Answers (1)

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Ishaan Tanner · Answer 1

The quarterly deposit required is $ 20,578.36

Explanation:

in order to determine the needed quarterly deposit, we make use of pmt formula in excel, which is given as:

=-pmt (rate, nper,-pv, fv)

rate is the rate of return on the deposit at 8% per year but 2% per quarter (8%/4)

nper is number of deposits required in the fund, which number of years, 5 multiplied by 4 (4 deposits per year)

pv is the present of the value of the future amount which is zero as it is not required.

Fv is the amount expected in 5 years which is $500,000

=-pmt (2%,20,0,500000)

pmt = $20,578.36