Fifteen years ago, the Archer Corporation borrowed $7,150,000. Since then, cumulative inflation has been 56 percent (a compound rate of about 3 percent per year).

a. When the company pays off the original loan of $7,150,000 this year, what will be the effective purchasing power of the $7,150,000? (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 purchasing power of $7,150,000, how much must be paid to the lender? (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 rating: 100% (QA)

a To calculate the effective purchasing power of 7150000 after 15 years of cumulative inflation we ... View the full answer