Question

1. Green Industries is a manufacturer of environmentally friendly household cleaners. Its business has been booming and it would like to save some money for a possible future expansion of its operating facilities. If Green is able to save $25,000 per year for the next 5 years, how much money would it have if it is able to earn an 4% rate of return compounded annually?

   The following time value of money factors may be useful:

   Present Value Factors

   PV of a single sum for 5 periods at 4% = 0.82193     PV of an annuity for 5 periods at 4% = 4.45182

   Future Value Factors

   FV of a single sum for 5 periods at 4% = 1.21665   FV of an annuity for 5 periods at 4% = 5.41632

   		1.) $514,550
   		2.) $324,979
   		3.) $433,306
   		4.) $135,408

Answer 1

Details of given question

Savings per annum=25000$

Time period=5years

Rate of interest=4%

The amount would it have after 5years at rate of 4% compounded annually = 25000*(future value of annuity at 4% for 5years)

=25000*5.41632

=135408$

The reason Why I used future value of annuity instead of present value is

1.In the given question it is asked to find out the amount it would have after 5 years at 4%interest rate compounded annually.

2. The amount flows as follows

Year 1= 25000.  

Year 2= 25000 like wise upto 5Years .

So which is an annuity but not a single amount.

So I used the formula FV of annuity for 5years at 4%interest rate