MarySullivan, capital outlay manager for Waxy Widgets, has been instructed toestablish a contingency fund to cover the expenses over the next two years (24months) associated with repairing defective widgets from a new production process.Waxy Widgets’ controller wants to make equal monthly cash deposits into thisfund. If Mary faces the following monthly repair costs and has $1 million tostart the fund today, what will be her monthlypayments into the fund in order to assume that all repair costs will becovered? Mary will make her first payment one month from today, and the fundwill earn 6 percent, compounded monthly. Months Repair Costs perMonth 1–4 $500,000 5–12 $250,000 13–24 $100,000
Mary
Sullivan, capital outlay manager for Waxy Widgets, has been instructed to
establish a contingency fund to cover the expenses over the next two years (24
months) associated with repairing defective widgets from a new production process.
Waxy Widgets’ controller wants to make equal monthly cash deposits into this
fund. If Mary faces the following monthly repair costs and has $1 million to
start the fund today, what will be her monthly
payments into the fund in order to assume that all repair costs will be
covered? Mary will make her first payment one month from today, and the fund
will earn 6 percent, compounded monthly.
Months
Repair Costs per
Month
1–4
$500,000
5–12
$250,000
13–24
$100,000
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