MetroKlean LLC, a hazardous waste soil cleaning company, borrowed $2.5 million for 5 years to finance start-up

Question:

MetroKlean LLC, a hazardous waste soil cleaning company, borrowed $2.5 million for 5 years to finance start-up costs for a new project involving site reclamation. The company expects to earn a real rate of return of 20% per year. The average inflation rate is 5% per year.

(a) Determine the capital recovery required each year with inflation considered.

(b) Determine the capital recovery if the company is satisfied with accumulating $2.5 million at the end of the 5 years with inflation considered.