National Rubber plans to spend $40,000 in two years to improve productivity.

Question

National Rubber plans to spend $40,000 in two years to improve productivity. At its next executive committee meeting, its officers plan to consider moving the project to the present time. How much can they justify spending today if they use an interest rate of 8% per year compounded quarterly? Round your answer to the nearer dollar

if possible i'd like to know the problem steps.

Answer 1

The formula for interest compounded at various intervals is:

A = P(1 + r)^nt

                  n

 

A = final amount, P = principal, r = interest rate, n = number of intervals, and t = time (in years)

 

40,000 = P(1 + .08)⁴⁽²⁾

                              4

40,000 = P(1 + .02)⁸

40,000 = P(1.02)⁸

40,000 = P(1.171659381)     divide both sides by that huge decimal

$34,140 = P