8. Use the future value of an annuity table or formula to determine the future...
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Accounting
8. Use the future value of an annuity table or formula to determine the future values in each of the specified scenarios.A. An ordinary annuity consists of payments of $1,000 received at the end of each year for five years. Assume that each $1,000 payment will be deposited in an account that pays 4 percent interest annually. Using the future value of an annuity table or formula, determine the annuitys future value.
B. An organizations risk management professional has determined that a steam boiler will need to be replaced in three years. The total cost of the replacement at that time is expected to be $75,000. The risk management professional wants to budget an equal amount to be deposited into a reserve fund at the end of each of the next three years. The fund is expected to earn a return of 3 percent, compounded annually. The risk management professional knows the amount to be deposited will be less than $25,000 ($75,000/3 years) because of the benefit of the 3 percent compounded interest. Using the future value of an annuity formula and the future value table, determine how much must be deposited in the account at the end of each of the next three years in order for it to accumulate to $75,000.
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