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Environmental Accountant

Real-Life Activities

Real-Life Math -- Solution

Future Value = 50 million (40,000,000 + 10,000,000)

i = 10 percent (0.10)
t = 10 years

Use the formula: Future Value = Payment x [((1 + i)t - 1) / i]

50,000,000 = Payment x [((1 + 0.10)10 - 1) / 0.10]
Payment = 50,000,000 / [((1 + 0.10)10 - 1) / 0.10]
Payment = $3,137,269.74 per year

The company will need to set aside $3.1 million per year for the next 10 years (assuming a 10 percent interest rate) in order to have $50 million in 10 years.

The company was expecting the payments to be much higher than that. They are so pleased with your accounting they recommend you to several other businesses facing future environmental costs.