McCarthy Construction is trying to bring the company-funded portion of its employee retirement fund into compliance with HB-301. The company has already deposited $500,000 in each of the last 5 years. If the company increases its deposits beginning in year 6 by 15% per year each year through year 20, how much will be in the fund immediately after the last deposit, provided the fund grows at a rate of 12% per year? Solve using (a) tabulated factors,
What will be an ideal response?
(a) Find P in year 4 for the geometric gradient,
then move all cash flows to future
P 4 = 500,000[1 – (1.15/1.12) 16 ]/(0.12 – 0.15)
= $8,773,844
F = 500,000(F/A,12%,4)(F/P,12%,16) + P 4 (F/P,12%,16)
= 500,000(4.7793)(6.1304) + 8,773,844(6.1304)
= $68,436,684
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