Exam 4: The Time Value of Money

$52,000 was deposited in a savings account 7 years ago, and the account earned interest at the rate of 12% per year. What is the amount of equal annual withdrawals that can be made to completely deplete the fund 7 years from now if the first withdrawal will be made now?

Upon his employment at the age of 22, Robert began to make a series of equal year- end deposits of $1100 to his retirement fund. After working for 5 years, he is now able to increase his saving. He plans to increase his annual deposits to $2200, starting at the end of next year i.e., at the age of 28). He also intends to increase the amount by $400 each year for the next 13 years i.e. until the age of 41), and continue his equal deposits of $7400 each year until the age of 60. He expects to retire at the age of 65. How much would his retirement fund be worth at the time of his retirement if it earns a rate of return of 10% per year?

Acme Manufacturing Company is considering purchasing a maintenance contract for its new waste management systems. Acme plans to begin the contract in year 5 and continue through year 10. The cost of the contract is $11,300 per year, increasing by $300 each year. If the company wishes to pre- pay the contract with uniform payments in year 1 through year 5, what is the annual payment that Acme has to pay? Assume Acme's minimum attractive rate of return is 13% per year.

Drugs, Inc. recently received approval from the Food and Drug Administration for its new supplemental drug application for a 300- milligram tablet of an antiplatelet treatment. The company invested $170 million in the research and development fund for this drug application 7 years ago. What is the present worth of the investment now, if the company achieves a rate of return of 2% per year?

Susan made 4 uniform annual deposits of $1800 in a savings account that earned an interest rate of 2% per year. Her last deposit was made 7 years ago. What is the future value of her savings 13 years from now, if she leaves the account untouched?

What is the amount of equal annual deposits needed in years 7 through 14 to provide for a series of annual withdrawals of $2400 beginning 9 years from now and increasing at the rate of 2% per year through year 19? Assume an interest rate of 5% per year.

Costs for maintaining buildings at an industrial complex over a 13- year period are expected to be $5400 in year 1, increasing at the rate of 15% per year through year 13. At an interest rate of 15% per year, what present worth at time 0) is equivalent to the series of maintenance costs?

British Airways Plc plans to set aside investment funds now for replacing 34 of the airline's aging long- haul fleet of Boeing 747s and 767s, which will be delivered 5 years from now. How much will the company need to have in its investment fund now if the cost of the fleet is $1000 million and the company earns a rate of return of 3% per year?

A major electronics manufacturer expects to generate additional revenue from its recently won government contract. The company forecasts that the revenue will be $190 million in the first year, but will decline by $2 million every year for the next 3 years. What is the present worth of total revenue at an interest rate of 18% per year?

What is the amount of interest earned on $900 for 8 years at 10.5% simple interest per year?