The supplier of certain suspension system parts for General

The supplier of certain suspension system parts for General Motors wants to have a contingency fund that it can draw on during down periods of the economy. The company wants to have $15 million in the fund 5 years from now. If the company deposits $1.5 million now, determine the uniform amount to add at the end of each of the next 5 years to reach its goal, provided the fund earns 10% per year. Solve using

a) Tabulated factors

b) Goal seek

Solution

a) Here,

FW = $15,000,000

P = 1,500,000

i = 10%

n = 5 years

FW = 1,500,000(F/P, 10%, 5) + A(F/A, 10%, 5)

15,000,000 = 1,500,000(1.611) + A(6.105)

15,000,000 = 2,416,500 + 6.105A

6.105A = 15,000,000 - 2,416,500 = 12,583,500

A = 12,583,500 / 6.105 = $2,061,179.36

Thus, an uniform amount of $2,061,179.36 is required to reach its goal