Purchase 1:
You plan to expand your vinyl fence company in the future, and must purchase a new warehouse facility to achieve this goal. Your insurance company is offering you two very attractive investment options, an ordinary annuity and an annuity due, both compounding quarterly and paying 8% annual interest over a 5-year period. Your 5-year budget includes saving $2,000.00 each quarter. To evaluate which option will benefit the business most, you must evaluate both annuity options by calculating the future value of each option and explain how the investment will help you to carry out your goals.
Purchase 2: After careful review of your maintenance log, you also realized that you will need to replace a fence post molding machine that sells for $40,000.00. You estimate that you will need to purchase a new machine in 3 years’ time as this machine reaches the end of its useful life. You plan to save for this purchase using a sinking fund that compounds semi-annually, and earns a 12% annual rate.
