Well-managed companies set aside money to pay for emergencies that inevitably arise in the course of doing business. A commercial solid waste recycling and disposal company in Mexico City puts 0.5% of its after-tax income into such an account.

(a) How much will the company have after 7 years if after-tax income averages $15.2 million and inflation and market interest rates are 5% per year and 9% per year, respectively?

(b) What will be the buying power of that amount in today’s dollars?