Define the symbols involved when a construction company want

Define the symbols involved when a construction company wants to know how much money it can spend 3 years from now to purchase a new truck in lieu of spending $50,000 now. The compound interest rate is 15% per year.

Solution

In the given case, construction company wants to know how much money it can spend 3 years from now to purchase a new truck in lieu of spending $50,000 now.

This implies that company wants to know the future value of $50,000 after 3 years.

In other words, it wants to know what would be the value of $50,000 after 3 years if compund interest rate is 15% per year.

So,

Present Value (PV) = $50,000

Compound Interest (i) = 15% or 0.15

Time (n) = 3 years

Future Value (FV) = ?

Calculate Future Value (FV) -

FV = PV*(1+i)ⁿ

FV = $50,000 * (1+0.15)³

FV = $50,000 * (1.15)³

FV = $50,000 * 1.52

FV = $76,000

Thus, construction company can spend $76,000, 3 years from now to purchase a new truck in lieu of spending $50,000 now.