Question

A company manufacturing FMCG is experiencing a surge in the demand and decides to expand its facility after five years. It forecasts that $500,000 would be needed in the fifth year to purchase land and construct factory building and $250,000 in the following year to purchase necessary machines. In order to meet these expenses, the company is planning to set aside an equal amount every quarter from its profits. However, after three years, the company doubles the savings but invests once in six months. Determine the amount the company has to save if the interest rate is 12% per annum compounded quarterly during the first three years, 12% p.a compounded monthly during the next two years and 12% p.a. compounded semi-annually during the last one year.

Answer 1

outflows afeter 5 th Years from NOw = 750,000

We need to determine the savings from each year

Interst rate = 12% pa & 3% per Quarter & 1% per Month

Answers

Years ( 1- 3 ) Payment & Compouding Quatertly == Saving from profits 46,986 Per Quater for 12 Quaters

Years ( 4-5) Payment Half yerly & Compounding Monthly == Savings from profits 93,973 Per Half period

Step 1) Determination of Annual payment with Compounding consideration

750,000= X*(1.03)^12 + 2x (1.01)^24

x=187,946 ^ Means = Square ( 3 Yers & 4 Quaters = 12) & ( 2 Yeras & mthly 24)

Step 2 ) Detarmination of Payment to be Made each time.

First 3 Years = Quaterly = 187,946/4 =46,986

4th & 5th Year = Half yearly == 187946/2 =93,973

Total Paymets = 12*46,986 + 4*93.973 half yearly