Question

Howell corporation deposited $12,000 in an investment account one year ago for the purpose of buying new equipment. Today, it is adding another $15,000 to this account. The company plans on making a final deposit of $10,000 to the account one year from today and plans to purchase the equipment four years from today. Assuming an interest rate of 5. 5 percent, how much cash will be available when the company is ready to buy the equipment?.

Answer 1

The company has $41,463.52 in cash on hand and is prepared to purchase the equipment.

The formula is

Principal * (1 + r)^t =  Amount

12000 * (1 +0.055)⁵ = Amount

The 12,000 capitalize for 5 years

$15,638,52

15000 * (1+0.055)¹ = Amount

Capitalize for 1 year

$15,825

$10,000 This deposit is only used to finish and buy the equipment; it has no capitalizing effect.

$15,638.52 + $15,825 + $10,000 =  $41,463.52

Hence, The company named Howell corporation has $41,463.52 in cash on hand and is prepared to purchase the equipment.

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