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How much does beach inc need to contribute on annual basis

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Reference no: EM132188516

Problem - Time Value of Money

On December 31, 2013, Beach Inc. determined that a sinking fund would be necessary to retire a bond with a $1,500,000 face value maturing on December 31, 2019. The coupon rate for the bond is 6% per annum Beach Inc. contributed an initial $500,000 to the sinking fund on January 1, 2014. Beach Inc. also plans to contribute an amount on an annual basis (equal contributions starting on December 31, 2014 and ending on December 31, 2019) Beach Inc.'s sinking fund contributions earn 8% per annum Future value factors are as follow:

 

At 6%

At 8%

Future value of 1 for 5 periods

1.33823

1.46993

Future value of 1 for 6 periods

1.41852

1.58687

Future value of an ordinary annuity of 1 for 5 periods

5.63709

5.86660

Future value of an ordinary annuity of 1 for 6 periods

6.97532

7.33592

How much does Beach Inc. need to contribute on an annual basis to have the funds sufficient to retire the bond?

Reference no: EM132188516

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