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

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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?

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