Meadow Brook Manor would like to buy some additional land and build a new assist

Question

Meadow Brook Manor would like to buy some additional land and build a new assisted living center. The anticipated total cost is $23.6 million. The CEO of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for one-half of the entire construction project. Management has committed to set aside $500,000 per quarter. The firm earns 5.25 percent, compounded quarterly, on the funds it saves. How long does the company have to wait before expanding its operations? 4.91 years 5.02 years 5.17 years 5.97 years 6.17 years

Explanation / Answer

Hi,

Please find the answer as follows:

You need to calculate Nper in the given case.

PMT = 500000

FV = 23600000/2

Rate = 5.25/4 = 1.3125 (4 indicates quarters)

Using these values we get = Nper(1.3125%, -500000,, 23600000/2) = 20.69358

Number of Years = 20.69358/4 = 5.17 Years

Answer is 5.17 Years.

Thanks.

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