Question
In: Finance
Sixteen years ago, the Archer Corporation borrowed $6,350,000. Since then, cumulative inflation has been 87 percent...
Sixteen years ago, the Archer Corporation borrowed $6,350,000.
Since then, cumulative inflation has been 87 percent (a compound
rate of approximately 4 percent per year).
a. When the firm repays the original $6,350,000 loan this year, what will be the effective purchasing power of the $6,350,000? (Hint: Divide the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
Effective purchasing power -
b. To maintain the original $6,350,000 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.)
Loan repayment -
Solutions
Expert Solution
1: Effective purchasing power of the $6,350,000=Amount/(1+cumulative inflation)
= 6,350,000/(1+0.87)
= 3395721.93
2: Amount the lender be repaid= Amount*(1+cumulative inflation) =6350000*(1+0.87)
= 11874500
jeff jeffy answered 2 years agoRelated Solutions
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