Determine the magnitude of year 0 investment

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Reference no: EM13726569

Reclamation costs on a project are expected to be incurred over a 30 year period from 27 to 56 years in the future from now. Reclamation costs are estimated to escalate 5.0% per year in the future. Using a 5.0% annual discount rate as representative of annual reclamation cost escalation, the year 0 present worth of the 27 to 56 year future reclamation costs is estimated to be $1.0 million. It is assumed that money today and in the future over the 56 year life of this analysis can be invested in U.S. Treasury Bonds paying 9.0% interest per year. Determine the magnitude of year 0 investment that an investor needs to make in U.S. Treasury Bonds paying 9.0% annual interest to cover the year 27 through 56 future reclamation costs.

Reference no: EM13726569

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