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 $3,000,000 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. (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.)
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 $3,000,000 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. (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.)
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
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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 $3,000,000 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.
(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.)
$
Chart is attached, then Table 11-1 & Table 12-1
Transcribed Image Text:Percent Inflation
11.0
9.0
7.06.5
5.0
3.0
1.0
-1.0
7.0
-10.5
4.0
3.6
m
'77 '79 '81
3.6
Forty Years of Changing Inflation Rates
5.0
'83 '85 '87 '89
5.5
'91
3.0 3.0
'93
3.1
2.8
2.4
2.0
Tiilili l
-2.5
'95 '97
3.4
Year
-2.6
-0.34
'99 '01 '03 '05 '07 '09 '11
1.5
0.12
'13 15
2.1
'17
→
Transcribed Image Text:Periods
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
6
7
8
9
10
1 / 1
11
12
%
1.00500
1.01003
1.01508 1.03030
1.04060
1.02015
1.02525
1.05101
1.03038
1.03553
1.04071
1.04591
1.05114
1%
1,1%
1.01000 1.01500
1.02010 1.03023
1.04568
1.06136
1.07728
1.06152
1.07214
1.08286
1.09369
1.10462
1.06168
1.05640 1.11567
1.12683
1.06699 1.13809
1.07232 1.14947
1.07768 1.16097
Periods 9%
10%
1
1.09000
1.10000
2
1.18810 1.21000
3
1.29503 1.33100
4
1.41158
1.46410
1.61051
5
1.53862
1.08307 1.17258
1.08849 1.18430
1.09393
1.19615
1.09940
1.20811
1.10490
1.22019
100% +
1.09344
1.10984
1.12649
1.14339
1.16054
2.58043 2.85312
2.81266 3.13843
1.17795
1.19562
1.21355
1.23176
1.25023
1.11042 1.23239 1.36706
1.11597 1.24472 1.38756
1.12155 1.25716 1.40838
1.42950
1.12716 1.26973
1.13280
1.28243
1.45095
1.26899
1.28802
1.30734
1.32695
1.34686
11%
1.11000
1.23210
1.36763
1.51807
1.68506
1.67710 1.77156 1.87041
1.82804 1.94872 2.07616
1.99256 2.14359 2.30454
2.17189 2.35795 2.55804
2.36736 2.59374
2.83942
3.15176
3.49845
3%
2%
1.02000 1.03000
1.04040 1.06090
1.06121 1.09273
1.08243 1.12551
1.10408 1.15927
1.12616 1.19405 1.26532
1.14869 1.22987 1.31593
1.17166 1.26677 1.36857
1.19509 1.30477
1.21899 1.34392
1.24337 1.38423
1.26824 1.42576
1.29361 1.46853
1.31948 1.51259
1.34587 1.55797
1.37279 1.60471
1.40024 1.65285
1.42825 1.70243
1.45681
1.75351
1.48595
1.80611
6%
7%
8%
4%
5%
1.04000 1.05000 1.06000 1.07000 1.08000
1.08160 1.10250 1.12360 1.14490 1.16640
1.12486 1.15763 1.19102 1.22504 1.25971
1.16986 1.21551 1.26248 1.31080 1.36049
1.21665 1.27628 1.33823 1.40255 1.46933
1.34010 1.41852 1.50073 1.58687
1.40710 1.50363 1.60578 1.71382
1.47746 1.59385 1.71819 1.85093
1.42331 1.55133 1.68948 1.83846 1.99900
1.48024 1.62889 1.79085 1.96715 2.15892
1.97382 2.08195
2.21068 2.35261
2.47596 2.65844
2.77308
3.10585
2.33164
1.89830 2.10485
2.01220 2.25219 2.51817
2.71962
1.53945 1.71034
1.60103 1.79586
1.66507 1.88565 2.13293 2.40985
1.73168 1.97993 2.26090 2.57853 2.93719
1.80094 2.07893 2.39656 2.75903 3.17217
1.87298 2.18287 2.54035 2.95216 3.42594
1.94790 2.29202 2.69277 3.15882 3.70002
3.37993 3.99602
2.02582
2.10685
2.19112
2.40662 2.85434
2.52695 3.02560 3.61653 4.31570
2.65330 3.20714 3.86968 4.66096
1.51567 1.86029 2.27877
1.54598 1.91610
1.57690 1.97359
2.03279
1.60844
1.64061 2.09378
3.47855 3.83586
3.89598 4.33452
2.78596 3.39956
2.36992 2.92526
2.46472 3.07152
4.14056 5.03383
3.60354 4.43040 5.43654
3.81975 4.74053 5.87146
2.56330 3.22510 4.04893 5.07237 6.34118
2.66584 3.38635 4.29187
5.42743
12%
1.12000
1.25440
13% 14%
15%
16%
17%
18%
1.13000 1.14000 1.15000 1.16000 1.17000 1.18000
1.27690 1.29960 1.32250 1.34560 1.36890 1.39240
1.40493 1.44290 1.48154 1.52088 1.56090 1.60161 1.64303
1.57352 1.63047 1.68896 1.74901 1.81064 1.87389 1.93878
1.76234 1.84244 1.92541 2.01136 2.10034 2.19245 2.28776
2.19497 2.31306 2.43640 2.56516 2.69955
2.50227 2.66002 2.82622 3.00124 3.18547
2.85259 3.05902 3.27841 3.51145 3.75886
3.00404 3.25195 3.51788 3.80296 4.10840 4.43545
3.39457 3.70722 4.04556 4.41144 4.80683 5.23384
6.84848
4.22623 4.65239 5.11726
4.81790 5.35025 5.93603
5.62399 6.17593
6.58007 7.28759
Periods
1
2
3
4
5
6
7
8
9
10
MDBHE DEG TERTE
11
12
13
14
15
16
17
18
19
20
21
22
23
24
25
Periods
1
2
3
4
5
6
7
8
9
10
11
12
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