Annual basis to meet the equity portion of replacement cost

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Reference no: EM131187975

Your nursing home board wishes to determine the amount of funds they should set aside annually to meet eventual replacement cost needs. The facility has a current cost of $6,000,000 and will be replaced in 20 years. It is expected that replacement costs will increase at 6 percent per year over the next 20 years, and any investments set aside for replacement will earn 8 percent. If 70 percent of the replacement cost will be debt financed, how much should be set aside on an annual basis to meet the equity portion of replacement cost?

Reference no: EM131187975

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