Meadow Brook Manor would like to buy some additional land and build a new assist
ID: 2776999 • 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 $28 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 $1.4 million a quarter for this purpose. The firm earns 6 percent compounded quarterly on the funds it saves. How long does the company have to wait before expanding its operations?
Explanation / Answer
future value of savings = 28000000
savings per quater = 1400000
=>
1400000 * [(1+6%/4)^-n -1]/6%/4 = 28000000
=>
n = 17.622
number of years he has to wait = 17.622/4 = 4.41 years