bad company, inc., has a major outlay of $1.05 million that is needed to renovate the company's manufacturing facility. because the company's management is conservative, it won't undertake the renovation until it has the cash necessary to fund the renovation. the company plans to deposit $95,000 each quarter into an account that will earn 1.1 percent per quarter. how many years will it be until the company has the money saved for the renovation?

The Future value concept of Time value of money help the Bad Company to compute the number of years required for saving the money in order to make a renovation of $1.05 million. The no. of years will be 2.62 years.

What is Future Value?

The worth of a current asset at some point in the future based on an estimated rate of growth is known as future value (FV). For investors and financial planners, the future value is crucial because they use it to predict how much an investment made now will be worth in the future.

The fair future value of an asset or investment can be determined in one of two ways: using simple interest or using compound interest.

The formula for calculating the no of years would be the future value with compound interest more appropriate here because the interest payment will 1.1% per quarter:

Future Value = Installment or regular payment × (1+Rate of Interest)ⁿ

where: I=Amount invested

Interest rate = R

n is the number of years.

$1.05 million = $95000 × {1+(1.1%/4)}ⁿ

n = 2.62 years

Thus the number of years required for the purpose of making the renovation of $95000 per quarter will be 2.62 Years.

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