Question 2 The Environmental Protection Department (EPD) operates the garbage la

Question

Question 2 The Environmental Protection Department (EPD) operates the garbage landfill in Hong Kong. When the landfill is closed 20 years from now, it is expected to cost $36,000,000 at that time to insure compliance with safety and environmental regulations. EPD can invest money at a 6% interest rate compounded quarterly How much cash would EPD have to set aside today in order to have the $36,000,000 in 20 years? a. b. Alternatively, how much cash would EPD have to set aside at the end of each quarter in order to have $36,000,000 in 20 years? c. EPD decides to set aside 6,000,000 today and then make annual payments for the remaining amount. Now how much would EPD have to set aside at the end of each year in order to have $36,000,000 in 20 years? d. Why does money have a Time Value?

Explanation / Answer

1
Annual effective rate=(1+6%/4)^4-1=6.136355%
=PV(6.136355%,20,0,36000000)=10940045.44

2
=PMT(6%/4,20*4,0,36000000)=235739.63

3
=PMT(6.136355%,20,-6000000,36000000)=435475.42

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