Question

21

Fifteen years ago, the Archer Corporation borrowed $6,300,000. Since then, cumulative inflation has been 56 percent (a compound rate of approximately 3 percent per year).

a. When the firm repays the original $6,300,000 loan this year, what will be the effective purchasing power of the $6,300,000? (Hint: Divide the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
  

b. To maintain the original $6,300,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
  

Answer 1