A city is initiating a sinking fund for development of a new landfill which will be constructed in exactly 10 years.(single payment 10 years from today). The expected inflation rate is 3% per year and the city can invest funds at 6% per year. The cost of the landfill is $10,000,000 in today's dollars. The city wants to fund the landfill by depositing a certain amount one year from now and increasing this by the inflation rate(3%) each payment. What is the amount of the initial payment into the fund at the end of the first year.

A city is initiating a sinking fund for development of a new landfill which will be constructed in exactly 10 years.(single payment 10 years from today). The expected inflation rate is 3% per year and the city can invest funds at 6% per year. The cost of the landfill is $10,000,000 in today's dollars. The city wants to fund the landfill by depositing a certain amount one year from now and increasing this by the inflation rate(3%) each payment. What is the amount of the initial payment into the fund at the end of the first year.

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 2.6IP

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