Time Value Analysis $$ Mini Case #$1$

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Achieve Rehabilitation in Kansas City has decided to expand its outpatient department.$$ The building consultants retained by Achieve estimate that, if the building were constructed today, the capital cost would be approximately $$15$ million.$$ However, the building consultants estimate that construction costs will increase by $2\mathrm{.}5\%$ per year over the next $3$ years, due to shortages of some materials and labor.

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Achieve is considering two banks for the building fund.$$ First, Great Plains Bank offers a CD that pays a $5\mathrm{.}0\%$ interest rate compounded quarterly.$$ In this account, all funds $$ whether invested for one, two or three years $$ must remain on deposit until the end of the three years.$$ Second, Mid$-$West Bank offers a money market account that pays $4\mathrm{.}95\%,$ compounded daily.$$ In this account, all funds may be withdrawn at any time.$$ Achieve projects that it will be able to invest $$2\mathrm{.}5$ million immediately, $$5$ million in one year, and $$7\mathrm{.}5$ million in two years.

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Achieve wants to ensure that it will have the funds it needs to build the new outpatient facility, but it is also concerned about $$locking up$$ its funds for three years $($which the CD would require$).$ Management must decide which bank to use for its building fund.

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Questions to consider$/$Answer when deciding on the bank to use for the building fund.

$1.$ What is the estimated cost of the building construction after $3$ years?

$2.$ Which bank offers the best interest rate?

$3.$ What is the future value of the investment with Great Plains Bank after $3$ years?$$ What is the future value of the investment with Mid$-$West Bank after $3$ years?

$4.$ Which bank generates the highest returns?

$4.$ Which bank is able to cover the costs of the building construction after $3$ years?

$5.$ Which bank would you recommend to use for the building fund?

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$$Fill out the information below from the information given in the case.

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Answer each of the questions using Excel.$$ Provide quantitative evidence supporting your answer.$$