A young graduate runs a small laundry business. She inherited the business from her late grandparents. Her
Question:
A young graduate runs a small laundry business. She inherited the business from her late grandparents. Her business is expanding, and she needs to purchase five extra heavy-duty washing machines worth R200 000. On average, heavy-duty washing machines have a useful life of 15 years and require little maintenance. She approached her bank for finance, and she is prepared to pay a R20 000 deposit. She intends to repay the loan over five years and wants the ownership of the machines to be transferred to her once she has finished paying off the debt. However, she does not have a credit record in her name, as she has been operating the business on a cash basis. Her business is profitable because she can pay all her monthly expenses and can save at least R5 000 every month. Currently, she has R100 000 in her savings account for emergencies. All the assets she owns are fully paid since she inherited them from her grandparents.
Suppose, she decides to first save, and then purchase the machines worth R200 000 for cash in three years’ time. Calculate how much she should invest today at 10% per annum, assuming interest is compounded quarterly.
South-Western Federal Taxation 2018 Comprehensive
ISBN: 9781337386005
41st Edition
Authors: David M. Maloney, William H. Hoffman, Jr., William A. Raabe, James C. Young