9:37 OA O *49 .l 4044woa9idón3EqdOc32r5kmr.J.A company wants to expand its manufacturing plant in 4 years. The engineer estimatesthe expenditure required now to be $8 million, but in 4 years, the cost will be higher byan amount equal to the inflation rate. If the company sets aside $8 million now into anaccount that earns interest at 4% per yegr, what will the inflation rate have to be in orderfor the company to have exactly the right amount of money for the expansion?

Inflation rate can be calculated usning below formula Inflation rate = (Current value - Base value)…

Answered: but in 4 years, the cost will b mpany…

but in 4 years, the cost will b mpany sets aside $8 million will the inflation rate have to unt of money for the expansie

FINANCIAL ACCOUNTING

10th Edition

ISBN:9781259964947

Author:Libby

Publisher:Libby

Chapter1: Financial Statements And Business Decisions

Section: Chapter Questions

Problem 1Q

See similar textbooks

Related questions

Q: What is the value today of $4,300 per year, at a discount rate of 10 percent, if the first payment…

A: First payment is received 6 years from today and last 20 years from today. Therefore, total payments…

Q: if you invest P10,000 with a rate of interest of 12% compounded annually, compute the interest of…

A: Here, Investment Amount is P10,000 Interest Rate is 12% Inflation Rate is 10% Time Period is 10…

Q: Find the cost of each item in 7 years, assuming an inflation rate of 8% (compounded continuously).…

A: Inflation rate (r) = 8% Mathematics constant (e) = 2.7183 (Always) Period (t) = 7 Years Therefore…

Q: You are promised an 8 year streams of income from buying a new technology at the initial amount of…

A: Step 1 Given a certain rate of return, present value (PV) is the current value of a prospective…

Q: If interest is compounded at 20% per year, how long will it take for P50,000 to accumulate to…

A: Interest rate = 0.20 Initial investment = P50,000 Accumulated value = P86,400 Period = ?…

Q: The real worth of P5000 investment is calculated at P6,445.71 five years from now, What is the…

A: First, let's calculate the nominal interest rate compounded annually. Let that interest rate be r.…

Q: For the given cash flow, if the equivalent uniform annual payments is $2000 and the interest rate is…

A: Uniform annual payment = $2000 i = 4% = 0.04 Period = 9 years Future value of annuity is calculated…

Q: A holiday package is valued at $15000 today. If inflation averages 2% per year, calculate the value…

A: Given: Value of holiday package is $15,000 Inflation = 2% period = 4 years

Q: How long will it take $300 to double if it earns thefollowing rates? Compounding occurs once a…

A: Calculation of number of years: Part (a): Answer: It will take 11.90 years to double the amount.

Q: Find the cost of each item in 7 years, assuming an inflation rate of 8% (compounded continuously).…

A: cost in 7 years = current cost * e^(inflation * time)

Q: You Plan to Put aside 20%- of your yearly income You expect to make I million $ in the fiost yeað…

A: The accumulated value of an investment is the entire amount it now possesses, including the money…

Q: A designer bag is worth P 2 million. If inflation is at rate of 5%, what will be the cost of the bag…

A: Inflation rate is a value at which the value of a product increases with the time. This follows the…

Q: What is the present value of a perpetuity stream of cash flows that pays P1,000 at the end of year…

A: present value of a perpetuity stream of cash flows = cash flows at end of year 1/(Discount rate -…

Q: Consider a situation, where (a) the equal-payment cash flow of $1,500 in constant dollars over three…

A: Constant dollar equal payment cash flow $1500 for three years The inflation rate of 4% An interest…

Q: 4) wishes to index this amount by about 0.075% per quarter to compensate for inflation effects. How…

A: When the nominal rate is adjusted for inflation, it is known as real rate of return. Real Rate of…

Q: Suppose you wish to retire in 41 years on a fixed income equiva- lent to $66,000.00 in today's…

A: Yield = 5.3% N = 41 Inflation rate = 2% Future Value Required = Present Equivalent * (1+Inflation…

Q: How much money be invested today in order to withdraw P1500 per year at the end of each year for 8…

A: Annual withdrawal (P) = P1500 Interest rate (r) = 8% Number of withdrawals (n) = 8

Q: After tax cash flows are 100,000 a year for 5 years. There is no terminal value. The payback period…

A: Initial Investment = cashflow per year × payback period =100000 × 3=…

Q: company is considering buying a CNC machine. In today's dollars, it is estimated that the…

A: Annual equivalent is the uniform annual payment that will be paid for uneven cash flow that is paid…

Q: that will pay CNY 150 in one Perpetuities nd it will continue to make payments at annual intervals…

A: Present value is the equivalent amount of payment that we would receive in the future considering…

Q: The future amount of ₱10,000.00 for a period of 8 years is equal to ₱34,165.55 considering money’s…

A: The future amount (F) = ₱ 34165.55 n = 8 years Present value (P) = ₱ 10000 Let f = Inflation rate r…

Q: Find the cost of each item in 5 years, assuming an inflation rate of 7% (compounded continuously).…

Q: With an annual inflation rate of 1.45%, how much did an item that costs $8000 now cost 3 years…

A: A theory that helps to compute the present or future value of the cash flows is term as the TVM…

Q: A computer equipment has an original cost of $650,000 with a scrap value of $50,000 at the end of…

A: Original cost = $ 650,000 Annual inflation = 2% Period = 8 Years Fund required after 8 years (F) =…

Q: An investment of $1,000 was made 35 years ago. What is the amount now at the market interest rate of…

A: FV = PV (1 + r)n where, FV = Future ValuePV = Present Valuer = Interest Raten = No.…

Q: 5. Which of the following statements is true about annuity? A. It is a series of payments of equal…

A: Since you have asked multiple questions, we will solve the one question for you. If you want any…

Q: An item presently costs P2,000. If inflation is at the rate of 8% per year, what will be the cost of…

A: Please see the next step for the solution

Q: Compute the future value of $396 invested every year if the appropriate rate is 11.2% and you invest…

A: The future value of the annuity is the total value of all the payments which occur regularly at a…

Q: With a 0.07 interest rate, approximately how much money must be invested today in order to withdraw…

A: Amount invested today = P{[1 - (1 + r)^-n] / r}

Q: You deposited $10,000 today into a saving account for 5 years with a market rate of 8% per year. The…

A: Deposit amount = $ 10000 Period = 5 Years Interest rate = 8% Inflation rate = 2%

Q: An annual growing perpetuity has a present value of $363,636.36 What is the growth rate (g) of this…

A: The time value of money is considered for determining the cash flows compounded and discounted…

Q: Find the cost of each item in 8 years, assuming an inflation rate of 9% (compounded continuously).…

A: Formula for continuously compounded interest is : P (t) = Po * ert where P (t) = Value at time t…

Q: Tommy John is going to receive $370,000 in three years. The current market rate of interest is 7%.…

A: Present Value(PV) is computed by discounting future amount using discount rate that is yet to…

Q: Find the cost of each item in 12 years, assuming an inflation rate of 11% (compounded continuously).…

A: cost of item will be future value of current cost and future value of compounded continuously is F…

Q: A certain amount of money after a decade is said to be worth Php 10,000.00. IF the interest rate…

A: Present Value = Future Value/(1+EAR)n EAR = (1+nominal rate/m)m -1 m is number of times interest…

Q: In year zero, you invest P10,000 in a 15% security for 5 years. During that time, the average annual…

A: Information provided in the given question: r = real rate of interest = (interest on the security -…

Q: An investment pays 3000 in one year, 2000 at the end of the second year and 1000 at the end of the…

A: Hi, thanks for posting the question. But as per our Q&A guidelines, the first three subparts…

Q: A given item now costs of ₱2,000. The cost of this item in 2 years time is ₱2,247.00. The inflation…

A: Use the Excel RATE function with the following inputs to determine the annual rate of inflation:…

Q: General price inflation is estimated to be 3% for the next 5 years, 5 % the 5 years after that, and…

A: Future Worth(FW) is value of current amount in future time calculated by compounding current amount.

Q: With an annual inflation rate of 1.57%, how much did an item that now costs $5700 cost 4 years…

A: Inflation rate is 1.57% Current Cost of Item is $5700 Time period is 4 years To Find: Cost of an…

Q: A small company plans to spend $10,000 in year 2 and $10,000 in year 5. At an interest rate of…

A: Equivalent annual worth analysis is done to determine the net worth after subtracting equivalent…

Q: If you deposit $2600 in order to get annual revenues each year up to 7 years, at a rate of return…

A: Capital recovery factor is annuity of the investment made today over the period of time at the given…

Q: How much money be invested today in order to withdraw P1500 per year at the end of each year for 8…

A: P 1,500 amount is to be withdrawn at the end of each year for next 8 years and the interest rate is…

Q: sn va s from now so that a new product lin money each quarter from now, how s worth 7% compounded…

A: In this we need to calculate the future value factor and than calculate the amount required each…

Q: If the interest payments are done semi-annually, what is the initial investment to be so that 6…

A: Semi-annual interest rate (r) = 26%/2 = 13% = 0.13 Number of semi-annual periods = 6 years x 2 = 12…

Q: The future amount of $200,000 for a period of 5 years is equal to $391,886.33, considering money is…

A: according to time value of money, future value = present value×1+rateyears

Q: How long will it take to double $1,000 if invested at 12.25% using annual compounding? а. 7.2 years…

A: This question require us to calculate the time period required to make the investment of $1000…

Concept explainers

Present Value

Present value (PV) is defined as the current or present value of all future sums of cash flow or money at a specified rate of return. This rate of return is known as the discounted rate, which is essentially the interest rate, discounted over some time. The expected cash flows are discounted at a discount rate to compute the present value. The higher the discount rate, the higher the future value (FV), but the lower the present value.

Question

9:37 O
A O *49 .l 404
4woa9idón3EqdOc32r5kmr.J.
A company wants to expand its manufacturing plant in 4 years. The engineer estimates
the expenditure required now to be $8 million, but in 4 years, the cost will be higher by
an amount equal to the inflation rate. If the company sets aside $8 million now into an
account that earns interest at 4% per yegr, what will the inflation rate have to be in order
for the company to have exactly the right amount of money for the expansion?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1

VIEW

Step 2

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, accounting and related others by exploring similar questions and additional content below.

Similar questions

1. A manufacturer of toilet flush valves wants to have P15,000,000 available 10 years from now so that a new product line can be initiated. If the company plans to deposit money each quarter from now, how much will it have to deposit each year if money is worth 7% compounded quarterly in order to have it available immediately at the end of 10 years? (a) (b) (c) (d) Less than P182,000 P182,500 P191,300 Over P262,000
Q5: Solve the following two independent scenarios: A. How much must be invested now to receive $30,000 for 10 years if the first $30,000 is received one year from now and the rate is 8%? Future Value PV FV Tables Factor Present Value PLEASE NOTE: All FV Factors will be rounded to three decimal places (i.e. 1.234). All dollar amounts will be with "$" and commas as needed and rounded to whole dollars (i.e. $12,345). Use the appropriate EXCEL spreadsheet in the Chapter11 TVOM Examples.xlsx downloadto prove your answer above: Using the appropriate EXCEL spreadsheet, the answer = PLEASE NOTE: The dollar amount will be with "$" and commas as needed and rounded to two decimal places (i.e. $12,345.67). B. Project A costs $5,000 and will generate annual after-tax net cash inflows of $1,800 for five years. What is the NPV using 8% as the discount rate? Future Value PV FV Tables Factor Net Present Value PLEASE NOTE: All FV Factors will be rounded to three…
Revenue from a project is expected to be $7000 per year in real terms (i.e. an identical project would earn $7000 in revenue today). If the expected inflation rate is 2.4%, what is the nominal value of the annual revenue (the actual number of dollars received) 8 years from now? Question 4Answer a. $8462 b. $8666 c. $8264 d. $8070
13- VMIC Corp. has asked you to look at the following data. The interest rate is 10%. 38 A Marginal Cost Data Year, n Existing Asset 1 $2000 2200 2 3 4 5 6 7 2300 2550 2900 3400 4000 EUAC if Kept n Years New Asset $6500 4200 3000 2650 2700 2800 3000 (a) What is the new asset's minimum cost life? (b) When, if at all, should we replace the existing asset with the new asset?
21.A firm considering the installation of an automatic data processing unit to handle some of its accounting operations. Machines for that purpose may be for P20,000, or may be leased for P8,000 for the 1st year and P1,000 less every year now and then until the end of the 4th year. If money is worth 15%, is it advisable to rent or buy the machine. *In written solution please
7. What is the minimum interest rate of a company should accept, if it is support and finance an energy saving program that saves P20,000.00 per year over its useful life of 10 years, if the initial cost is P112,000.00? a. 10% b. 12 % c. 17% d. 20%
9. Problem 11.02 (IRR) dofice eBook Project L costs $54,779.63, its expected cash inflows are $13,000 per year for 8 years, and its WACC is 11%. What is the project's IRR? Round your answer to two decimal places. %
1. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure below. (0.6) Introduce New Product $200,000 profit per year for six years, starting at EOY 3 -$1,000,000 at ΕΟΥ 2 (0.4) $280,000 profit per year for six years, starting at ΕΟΥ Year 0 $0 profit/yr. for 8 years Do Nothing
Tricorp Company is considering an investment that is expected to return $320,000 after four years. If Tricorp demands a 15% return, what is the most that it will be willing to pay for this investment? 15%, 4 years annually Factor Present value of a $1 0.572 Future value of $11.749 Present value of an annuity 2.855 Future value of an annuity 4.993 a. $320,000 b. $177,696 c. $183,040 d. $45,216 e. $278,272
1. If the interest rate is 8% per year, what decision would you make based on the decision tree diagram in Figure below. (0.6) Introduce New Product $200,000 profit per year for six years, starting at ΕΟΥ 3 -$1,000,000 at ΕΟ 2 (0.4) $280,000 profit per year for six years, starting at ΕΟΥ 3 Year 0 $0 profit/yr. for 8 years Figure 10.3. Decision Tree Diagram Do Nothing
A new project will allow you to sell a new product at $61 each. Variable costs are $24 each and fixed costs would run $75,000 per year. If there is no initial investment required, how many units would you have to sell annually to break-even (aka the "accounting break-even quantity")? (Round up to the next whole number of units.) O a. 1800 O b. 2147 O c. 2287 O d. 1778 Oe. 2028
May I ask for an explanation and solution to the question for a better understanding. Thank you! 14. Your firm rents office space for P250,000 per year, due at the BEGINNING of each year. If your firm's hurdle rate is 10%, what is the present value of five years' worth of rent? a. P1,042,466.36 b. P170,753.36 c. P402,627.50 d. P155,230.33