Meadow Brook Manor would like to buy some additional land and build a new assist
ID: 2384534 • Letter: M
Question
Meadow Brook Manor would like to buy some additional land and build a new assisted living center. The anticipated total cost is $20.5 million. The CEO of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire construction project. Management has decided to save $1.2 million a quarter for this purpose. The firm earns 6.25 percent, compounded quarterly, on the funds it saves. How long does the company have to wait before expanding its operations?
3.09 years
3.82 years
4.46 years
4.82 years
4.91 years
3.09 years
3.82 years
4.46 years
4.82 years
4.91 years
Explanation / Answer
Total Cost of Land and Building
$20,500,000
Quarterly Savings Amount
$1,200,000
Interest Rate (Compounded quarterly)
6.25%
Calculating Number of Periods(Nper)
(Using Ms-Excel "Nper" Function):
Interest Rate (Rate) [Compounded Quarterly]
0.0625 / 4
Quarterly Savings Amount (PMT)
-1,200,000
Total Cost of Land and Building (FV)
20500,000
Number of Periods (Nper)
19.64
Number of Years (19.64/ 4)
4.91years
Total Cost of Land and Building
$20,500,000
Quarterly Savings Amount
$1,200,000
Interest Rate (Compounded quarterly)
6.25%
Calculating Number of Periods(Nper)
(Using Ms-Excel "Nper" Function):
Interest Rate (Rate) [Compounded Quarterly]
0.0625 / 4
Quarterly Savings Amount (PMT)
-1,200,000
Total Cost of Land and Building (FV)
20500,000
Number of Periods (Nper)
19.64
Number of Years (19.64/ 4)
4.91years