Question

Winston Enterprises would like to buy some additional land and build a new factory. The anticipated total cost is $141.78 million. The owner of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire expansion project. Management has decided to save $510,000 a month for this purpose. The firm earns 6 percent compounded monthly on the funds it saves. How long does the company have to wait before expanding its operations? (Do not round intermediate calculations.)

Answer 1

Information provided:

Future value (FV) = $141,780,000

Monthly saving = $510,000

Monthly interest rate= yield to maturity (I/Y)= 6% / 12 = 0.50%

The time the company has to wait before expanding its operation is calculated by entering the below information in a financial calculation:

FV= 141,780,000

PMT= -510,000

I/Y= 0.50

Press the CPT key and N to compute the time taken for the investment to grow to $1,044.16 .

The value obtained is 174.6940.

Therefore, the company has to wait for 174.6940/12 = 14.56 years before expanding its operation.

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