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A business is setting aside funds to be used 8 years from now to replace a machine, that if replaced now, would cost $700,000. The expected annual increase in the machine's cost from inflation is 5.20%. The plan to deposit $260,000 now followed by 8 end of year equal deposits into an account paying 7.20% interest annually.

a. What is the forecasted cost of the machine when it is replaced applying inflation rate?

b. What is the amount of annual deposit that must be made to have the total replacement cost set aside?

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Financial Management, Finance

Category:- Financial Management
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