Problema Solution

A contractor buys a back hoe and plans on keeping it for 20 years. After that it will be too expensive to maintain. Taking inflation into account, the contractor decides to put $2500 per year into a sinking fund that earns interest at 8% /a compounded semiannually in order to be able to purchase a new back hoe. How much will the contractor have available for the new back hoe?

Answer provided by our tutors

cost of container = 2500(1+0.04)40 = 2500(1.04)40  = 2500*4.010 = $12002.50