Since the construction industry is notorious for having slumps in the course of business where operational cash flow is constrained, Ms. Sims has decided to put aside $15,000 a month from profits for the next five years as a safety net for recessionary periods. The money will be set aside in a separate account which pays 3.25% annual interest compounded monthly. The first $15,000 is placed in the account today.

Activity: Compute how much this account will contain after 5 years.

You know that the board of directors will have questions for Sue to answer and to place this in context of Sues recommendations and potential impact to the company you should prepare answers for her based on your research and conversations with Sue. Here are some of the questions the board may ask

Isnt this money an opportunity cost to the company?

Would you recommend using company profits in this manner?

Are there better options here to manage the volatility of sales?

So looks like there are 4 pieces we need to address:

• Compute how much this account will contain after 5 years.

• Isnt this money an opportunity cost to the company?