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Time Value of Money

One of the projects the US loan will fund is to build earthquake-resistant buildings. The project will begin in March 2013, last for two years and is expected to have the following expenditures: start-up costs of $200,000 paid at the beginning of the first month; rental of equipment to be paid at the beginning of the month that will be $100,000 each month for the first year, but $50,000 each month for the second year; material costs to be paid at the end of each month which will be $30,000; personnel costs of $100,000 to be paid at the end of each month; and end-of-project clean-up costs of $100,000 that will be paid at the end of the last month (February 2015). Assume that with the fiscal cliff looming in March 2013, Secretary Kerry is only willing to allot $3,000,000 of the US loan at the start of the project due to this concern. These funds are put into an account which pays interest at a stated annual rate of 12 percent, compounded monthly. Compute how much this project requires at the beginning of the second year that would be necessary to cover its expected expenditures.

Basic Finance, Finance

  • Category:- Basic Finance
  • Reference No.:- M91149

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