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

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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