You are the vice president of finance for a manufacturer of scuba diving gear. The company is planning a major plant expansion in 5 years. You have decided to start a sinking fund to accumulate the funds necessary for the project. Your company's investments yield 8% compounded quarterly. It is estimated that $3,000,000 in today's dollars will be required; however, the inflation rate on construction costs and plant equipment is expected to average 6% per year for the next 5 years. MY NOTES ASK YOUR TEACHE Forty Years of Changing Inflation Rates 11.0 10.5 9.0 7.0 7.0 -6.5 5.5 5.0 5.0 4.0 3.6 3.6 3.0 3.0 3.0 3.4 Iilili 2,8 2.4 3.1 2.5- 2.6 2.0 2.1 1.0- 1.5 0.12 -1.0 -0.34 *93 "95 "97 "99 01 "03 05 "07 "09 11 "77 79 81 '83 "85 "87 "89 91 *13 15 17 Year (a) Use the compound interest concept from Chapter 11 to determine how much (in $) will be required for the project, taking inflation into account. (Use Table 11-1. Round your answer to the nearest cent.) (b) What sinking fund payments (in $) will be required at the end of every 3-month period to accumulate the necessary funds? (Use Table 12-1. Round your answer to the nearest cent.) 24

You are the vice president of finance for a manufacturer of scuba diving gear. The company is planning a major plant expansion in 5 years. You have decided to start a sinking fund to accumulate the funds necessary for the project. Your company's investments yield 8% compounded quarterly. It is estimated that $3,000,000 in today's dollars will be required; however, the inflation rate on construction costs and plant equipment is expected to average 6% per year for the next 5 years. MY NOTES ASK YOUR TEACHE Forty Years of Changing Inflation Rates 11.0 10.5 9.0 7.0 7.0 -6.5 5.5 5.0 5.0 4.0 3.6 3.6 3.0 3.0 3.0 3.4 Iilili 2,8 2.4 3.1 2.5- 2.6 2.0 2.1 1.0- 1.5 0.12 -1.0 -0.34 93 "95 "97 "99 01 "03 05 "07 "09 11 "77 79 81 '83 "85 "87 "89 91 13 15 17 Year (a) Use the compound interest concept from Chapter 11 to determine how much (in $) will be required for the project, taking inflation into account. (Use Table 11-1. Round your answer to the nearest cent.) (b) What sinking fund payments (in $) will be required at the end of every 3-month period to accumulate the necessary funds? (Use Table 12-1. Round your answer to the nearest cent.) 24

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter5: The Time Value Of Money

Section: Chapter Questions

Problem 40P

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You are the vice president of finance for a manufacturer of scuba diving gear. The company is planning a major plant expansion in 5 years. You have decided to start a sinking fund to accumulate the funds necessary for the project. Your company's investments yield 12% compounded quarterly. It is estimated that $4,000,000 in today's dollars will be required; however, the inflation rate on construction costs and plant equipment is expected to average 7% per year for the next 5 years. Forty Years of Changing Inflation Rates 11.0 10.5 9.0 7.0 7.0 F6.5 5.5 5.0 5.0 4.0 3.6 3.6 3.4 ili 3.0 3.0 -2.5 3.1 2.8 2.4 3.0 liilili 2.6 2.0 2.1 1.5 1.0 0.12 -1.0 -0.34 68, '91 S6, '97 Year 7רי '79 '81 '83 '85 '87 '93 66, '01 '03 '05 '07 '09 '11 '13 '15 '17 (a) Use the compound interest concept from Chapter 11 to determine how much (in $) will be required for the project, taking inflation into account. (Use Table 11-1. Round your answer to the nearest cent.) (b) What sinking fund payments (in $) will be…
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