Tracy Lee, a Capital Expenditure Manager for Ho-Mei Food Manufacturing, knows that her company is facing a series of monthly expenses associated with installation and calibration of new production machines. The company has $800,000 in a bank account at Tiger bank right now that it can draw on to meet these maintenance expenses. Funds in this account earn 5% interest annually, with monthly compounding. Ms. Lee is preparing a budget that will require the firm to make equal monthly deposits into the bank account at Tiger bank, starting next month, to ensure that the firm can pay the maintenance expenses they anticipate over the next 24 months shown as follows. Months Maintenance expenses per Month $60,000 $100,000 1–12 13–24
Tracy Lee, a Capital Expenditure Manager for Ho-Mei Food Manufacturing, knows that her company is facing a series of monthly expenses associated with installation and calibration of new production machines. The company has $800,000 in a bank account at Tiger bank right now that it can draw on to meet these maintenance expenses. Funds in this account earn 5% interest annually, with monthly compounding. Ms. Lee is preparing a budget that will require the firm to make equal monthly deposits into the bank account at Tiger bank, starting next month, to ensure that the firm can pay the maintenance expenses they anticipate over the next 24 months shown as follows. Months Maintenance expenses per Month $60,000 $100,000 1–12 13–24
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 19P
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(Please answer it asap, round the final answer to 2 decimals places, thanks for your help)
(a) To ensure that the firm can pay the maintenance expenses over the next 24 month, how much should the monthly bank deposit be?
(b) For the investment to acquire new production machines, name and describe this type of
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