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. 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 3.0 3.0 2.5 3.1 2 3.0 2.8 2.1 1.5 1.0 0.12 -1.0 -0.34 '77 79 '81 '83 '85 '87 '89 "1 '93 '95 '97 '99 "01 '03 '05 '07 "09 '11 '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.) Percent Inflation
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. 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 3.0 3.0 2.5 3.1 2 3.0 2.8 2.1 1.5 1.0 0.12 -1.0 -0.34 '77 79 '81 '83 '85 '87 '89 "1 '93 '95 '97 '99 "01 '03 '05 '07 "09 '11 '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.) Percent Inflation
Chapter4: Financial Planning And Forecasting
Section: Chapter Questions
Problem 6P
Related questions
Question
![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.
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
3.0
3.0
-2.5
3.1
2.8
2.4
3.0
2.6
Hiilili.
2.0
2.1
1.5
1.0
0.12
-0.34
-1.0
'77
'79
'81
'83
'85
'87
'89
'91
'93
'95
'97
66,
'01
'03 '05
"07
60,
'11
'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.)
$](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F33f91ac5-b1d4-40eb-b53b-55679a7aa3e6%2F24aa9999-fa99-44b2-a6af-179044c8fcde%2Fzd04lpm_processed.png&w=3840&q=75)
Transcribed Image Text: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.
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
3.0
3.0
-2.5
3.1
2.8
2.4
3.0
2.6
Hiilili.
2.0
2.1
1.5
1.0
0.12
-0.34
-1.0
'77
'79
'81
'83
'85
'87
'89
'91
'93
'95
'97
66,
'01
'03 '05
"07
60,
'11
'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.)
$
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