Calculate sinking fund payment required for fence post

Assignment Help Operation Management

Reference no: EM131232796

As the owner of a vinyl fencing company, you are making plans for two large purchases in the next 3 to 5 years to achieve your business goals.

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 $2,500.00 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 $45,000.00. 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.

Your essay should in include the following information

Calculate the future value of both the ordinary annuity and the annuity due options being offered by your insurance company. Explain the differences between these two investment options. Select the best annuity option for your business and explain why that option is preferable.

Calculate the sinking fund payment required for the fence post molding machine.

Compare and contrast the shorter timeframe and higher interest rate of the sinking fund with the longer term warehouse annuity option you chose. Be sure to calculate and report how much interest you will earn from the annuity chosen for the warehouse and the amount of the sinking fund investment.

Develop a plan to prioritize these two purchases, and discuss the potential impact that these will have on the future of your business. For example, is expanding your business more important than saving for and paying cash for a fence post molding machine? Remember, you could borrow money to finance the fence post molding machine when it eventually breaks, but financing will cost the business in finance charges.

Reference no: EM131232796

Questions Cloud

How the sharing economy relates to service design : Define Sharing Economy and how the Sharing Economy relates to Service Design. Create a network diagram that shows the sequence and dependent relationships of all the activities. Analyze and evaluate the two most salient trends impacting the ancillary..

Manufacturer of all-terrain vehicles : LTV Corporation, a manufacturer of all-terrain vehicles, needed shipping crates to export the vehicles. LTV, therefore, circulated a detailed invitation to bid to obtain a local supplier who could manufacture 8,000 crates according to specifications,..

Define and discuss the characteristics of work package : Project Management First, create a simple WBS. Create it from an everyday process or one used in a related school project or paper. List the steps and sub-steps in the process. Second, define and discuss the characteristics of a work package. Do your..

Complain about poor service : Write a letter to a company to complain about poor service you received from them during the recent past. The complaint letter must be based on your actual experience.The letter should be as specific as possible so that the manager could understand t..

Calculate sinking fund payment required for fence post : As the owner of a vinyl fencing company, you are making plans for two large purchases in the next 3 to 5 years to achieve your business goals. Calculate the sinking fund payment required for the fence post molding machine. Compare and contrast the sh..

Negotiated on cost-plus basis-what are the ethical issues : LRF Printing provides printing services to many different corporate clients. Although LRF bids most jobs, some jobs, particularly new ones, are negotiated on a “cost-plus” basis. Cost-plus means that the buyer is willing to pay the actual cost plus a..

Analyzes data of hundreds of billions of shopping with cards : Analyzes data of hundreds of billions of shopping with cards to create campaigns directed of a way one to one.

Describe how diverse workplace can raise the performance : Describe how a diverse workplace can raise the performance of an organization and detail one strategy an organization can follow to create a more balanced, diverse workforce.

Types of measurements used in quality assurance systems : What do you understand of the types of measurements used in quality assurance systems, and Be able to explain why certain measurements are chosen in specific situations and Understand the importance of acting on the findings provided by measurements.

User Account

All Pages