You just started a major renovation project for SAITs Senator Burns Building which has been estimated to last approximately 5 years (complete retrofit of all systems and major upgrades to comply with more strict future environmental legislations and codes). Contract is worth 5M. You just identified that the cost of commissioning the building at the end of the project was totally missed by the estimator and the business development manager that put the contract in place. However, they did allocate healthy yearly contingency amounts for any unforeseen conditions or missed items; the only problem is the you can only access a portion ($10K) each year starting on year 2. If the best interest rate you could get is 5% on a cash investment, what is the future value of 10k invested yearly (starting from year 2) over a 5-year period? Is the amount enough to cover the cost of commissioning? If not, what interest rate do you require in order to cover the expense? Alternatively, how much would you need to set aside each year (starting from year 2) over a 5-year period in order to cover the anticipated cost if all you can get is 5% compounded annually? The anticipated cost of commissioning will be roughly 0.012% of the cost of the contract.

it does mean 1.2%