"A small company wishes to set up a fund" that can be used for technology purchases over the next 6 years. Their forecast is for $12,000 to be needed at the end of year 1, decreasing by $2,000 each year thereafter. The fund earns 8% per year. How much money must be deposited to the fund now to just deplete the fund after the last withdrawal?

The money that must be deposited to the fund now to just deplete the fund after the last withdrawal is $34,428.

Explanation:

This is a case of decreasing annuity, in which every year is decreased a fixed ammount. In this case, the decrease does not have a constant rate, so the formula for a increasing (or decreasing) annuity is not applicable.

We have to calculate the present value in a traditional way:

in terms of experimental research, mcdonald’s charging different prices in the two cities relates to

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