A small company wishes to set up a fund that can be used for

A small company wishes to set up a fund that can be used for technology purchases over the next 6 years. Their forecast is for $22,000 to be needed at the end of year 1, decreasing by $2,000 each year thereafter. The fund earns 10% per year. How much money must be deposited to the fund at the end of year O to just deplete the fund after the last withdrawal?

Solution

Year Amt received PVF @ 10% Present value 0 0 1 0 1 22000 0.909091 20000 2 20000 0.826446 16528.93 3 18000 0.751315 13523.67 4 16000 0.683013 10928.22 5 14000 0.620921 8692.899 6 12000 0.564474 6773.687 Present value of Cash flows 76447.39 Investment required in Yr-0: $ 76447.39