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Chapter 6: Question 10BE (page 302)

Henry Quincy wants to withdraw $30,000 each year for 10 years from a fund that earns 8% interest. How much must he invest today if the first withdrawal is at year-end? How much must he invest today if the first withdrawal takes place immediately?

Short Answer

Expert verified

The amount he should invest today if the first withdrawal is at the end of the year will be $201,302, and the amount will be $217,407 when the withdrawal takes place immediately.

Step by step solution

01

Calculation of the amount to be invested if first withdrawal is at year-end

PV-OA=R(PVF-OAn,i)=30,000×6.71008=$201,302

02

Calculation of the amount to be invested if the first withdrawal takes place immediately

PV-AD=R(PVF-AD)=30,000×7.24689=$217,407

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Most popular questions from this chapter

Assume that Wal-Mart Stores, Inc. has decided to surface and maintain for 10 years a vacant lot next to one of its stores to serve as a parking lot for customers. Management is considering the following bids involving two different qualities of surfacing for a parking area of 12,000 square yards.

Bid A: A surface that costs \(5.75 per square yard to install. This surface will have to be replaced at the end of 5 years. The annual maintenance cost on this surface is estimated at 25 cents per square yard for each year except the last year of its service. The replacement surface will be similar to the initial surface.

Bid B: A surface that costs \)10.50 per square yard to install. This surface has a probable useful life of 10 years and will require annual maintenance in each year except the last year, at an estimated cost of 9 cents per square yard.

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