b. Scenario 2 InfoTech Ltd, an IT company based in Muscat, wants to set up an employee benefit reserve fund. The purpose of this fund is to help the company make payments for the medical, dental and other costs incurred by its employees. The company need to setup a fund so that it can use an amount of RO 3000 yearly for the next 12 years for this purpose. The company has two options to set up this fund. Option 1 The company can make a single payment of a lump sum amount in a bank which would fetch an interest rate of 13% annually. This deposit would grow over the years and the required amount of RO 3000 could be taken from this fund every year for the next 12 years. Option 2 The company could deposit an amount of RO 1200 at the end of first year in bank and increment the deposit by RO 500 each year for the next 11 years. If the bank gives an interest of 14% every year on its deposits this fund will be sufficient to meet the employee welfare expenses. Which of these two options would be better for the company if the company considers the cash flows in terms of its Future Worth? Justify your answer with proper explanations.

b. Scenario 2 InfoTech Ltd, an IT company based in Muscat, wants to set up an employee benefit reserve fund. The purpose of this fund is to help the company make payments for the medical, dental and other costs incurred by its employees. The company need to setup a fund so that it can use an amount of RO 3000 yearly for the next 12 years for this purpose. The company has two options to set up this fund. Option 1 The company can make a single payment of a lump sum amount in a bank which would fetch an interest rate of 13% annually. This deposit would grow over the years and the required amount of RO 3000 could be taken from this fund every year for the next 12 years. Option 2 The company could deposit an amount of RO 1200 at the end of first year in bank and increment the deposit by RO 500 each year for the next 11 years. If the bank gives an interest of 14% every year on its deposits this fund will be sufficient to meet the employee welfare expenses. Which of these two options would be better for the company if the company considers the cash flows in terms of its Future Worth? Justify your answer with proper explanations.

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018

18th Edition

ISBN:9780079039897

Author:Carter

Publisher:Carter

Chapter7: Exponents And Exponential Functions

Section: Chapter Questions

Problem 68SGR

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