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Calculate how much PFN must deposit each semi-annual period

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Question - PFN Inc. has recently determined that its northern strip mining operation will only be profitable for 10 more years, and the company anticipates that it will need $5 million at that time to fill and refresh damaged land. To ensure that sufficient funds are available, PFN has decided to set aside a certain amount of cash twice per year in a sinking fund on which it estimates it can earn an effective annual interest rate of 9%.

REQUIRED -

a) Calculate how much PFN must deposit each semi-annual period if it is to have the $5 million at the end of 10 years.

b) If, at the end of 5 years, immediately after making its tenth semi-annual deposit, the firm decides to make a lump sum deposit in lieu of further sinking fund payments, how large a lump sum would be required?

Reference no: EM132786276

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