Company X plans to build a new manufacturing facility in 4 years at an estimated cost of $15 million. They plan to finance the construction by using cash generated by their operations. They will invest cash at the end of each of the next 4 years into a sinking fund, so there will be 4 investments. They expect to earn 5%/year on funds invested in the sinking fund and intend to invest the same amount each year. What annual investment to the fund will produce a balance of $15 million in 4 years?

B. Company Y has just added about 50% to the retail floor space in their only store. They need to increase their inventory to stock the new space and are in the process of negotiating a loan with their bank. The additional inventory will cost $60,000. Y plans to repay the loan in two years. If the bank offers to lend Y $60,000 and calculates a repayment in two years of $65,500, what interest rate are they charging?

C. Assume the same situation as in part B, but now assume that Y counters with a request for a $65,000 repayment and a 4% annual interest rate. If the bank accepts this counter, what amount would they agree to lend Y today?

D.Company Z borrows $1,000,000 on a Note from its bank, with an agreement to make periodic payments over the 4 year term of the loan at a 7% interest rate. Calculate the amount of Z's payments if they will pay a) monthly and b) quarterly. Z now needs to choose one of the repayment options and comes to you for advice.

 What would you advise them to choose? Explain.

Answer rating: 100% (QA)

SOLUTION A To calculate the annual investment to the fund that will produce a balance of 15 million in 4 years we can use the present value of annuity ... View the full answer