Question

Bad Company, Inc., has a major outlay of $2.05 million that is needed to renovate the company's manufacturing facility. Because the company's management is conservative, it won't undertake the renovation until it has the cash necessary to fund the renovation. The company plans to deposit $155,000 each quarter into an account that will earn 2.05 percent per quarter. How many years will it be until the company has the money saved for the renovation

Answer 1

Bad Company

The number of years that it will take for the company to have the money saved for the renovation is:

= 3.2 years (12.793/4).

Step-by-step explanation:

a) Data and Calculations:

The outlay required for the renovation of the manufacturing facility = $2.05 million

Quarterly deposit into an account = $155,000

The interest earned per quarter on the deposit = 2.05% per quarter

From an online financial calculator, it will take 3.2 years:

I/Y (Interest per year) 2.25

PV (Present Value) 2050000

PMT (Periodic Payment) = $ 155000

FV (Future Value) 0

Results

N = 12.793

Sum of all periodic payments = $1,982,883.80

Total Interest = $67,116.20