Friday, 22 May 2015

Twelve years ago, the Archer Corporation borrowed $6,850,000. Since then, cumulative inflation has been 80 percent (a compound rate of approximately 5 percent per year).

Twelve years ago, the Archer Corporation borrowed $6,850,000. Since then, cumulative inflation has been 80 percent (a compound rate of approximately 5 percent per year).
  
a.
When the firm repays the original $6,850,000 loan this year, what will be the effective purchasing power of the $6,850,000? (Hint: Divide the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
    
  Effective purchasing power$   
    
b.
To maintain the original $6,850,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) (Do not round intermediate calculations and round your answer to the nearest whole dollar.)
    
  Loan repayment$   

 
Explanation: