Help with accounting problem

Posted on 2013-11-22 11:44:00 in Accounting by HINEYNGUYEN

I'm really stuck on this hw problem! can someone help me please?



Keith Bowie is trying to determine the amount to set aside so that he will have enough money on hand in 3 years to overhaul the engine on his vintage used car. While there is some uncertainty about the cost of engine overhauls in 3 years, by conducting some research online, Keith has developed the following estimates.



Engine Overhaul

Estimated Cash Outflow

$370

590

770

980



Probability Assessment

10%

30%

50%

10%

respectively.



How much should Keith Bowie deposit today in an account earning 6%, compounded annually, so that he will have enough money on hand in 3 years to pay for the overhaul?

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