+598 The expansion will occur over 4 years and is expected to require $2.8 million.
Management has developed a payment plan for carrying out this expansion. The plan requires a cash input of $300,000 now, $700, 000 one year from now, $800,000 two years from now, and finally, $1,000,000 four years from now.
he Treasurer has predicted interest rates over the next four years to be as follows:
Year 1: interest rate of 4.5% p.a. compounded semi-annually
Year 2: interest rate of 5.0% p.a. compounded semi-annually
Year 3: interest rate of 5.0% p.a. compounded semi-annually
Year 4: interest rate of 5.5% p.a. compounded semi-annually
Since the Treasurer’s investment plan has a guaranteed rate for five years, suppose the company decided to delay the expansion for twelve months to take advantage of this fact. The payment plan to fund the expansion would retain the same payment schedule. However, the final payment in the last year would increase by 10%, due to projected increase in construction costs.
What is the equivalent value, twelve months from now, of the cash available to fund the expansion? Show your calculations.
Any help with steps would be greatly appreciated, thanks
