Question

You are the vice president of finance for a manufacturer of scuba diving gear. The company...

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.

A decorative bar chart titled "Forty Years of Changing Inflation Rates" has a horizontal axis labeled "Year". The vertical axis is labeled "Percent Inflation" and has values from −1.0 to 11.0. The heights of the bars vary from a high of 10.5 for year 1981, to a low of −0.34 for year 2009.

(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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