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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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  1. 28 May, 10:06
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    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
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