Fifteen years ago, the Archer Corporation borrowed 7,150,000 dollars. Since then

Question

Fifteen years ago, the Archer Corporation borrowed 7,150,000 dollars. Since then, cumulative inflation has been 56 percent(a compund rate of approximately 3 percent per year).

a) When the firm repays the orginial 7,150,000 loan this year, what will be the effective purchasing power of the 7,150,000? (Hint: Divide the loan amount by one plus cumulative inflation). (Round your answer to the nearest dollar amount.)

b) To maintain the orginial 7,150,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation.) (Round your answer to the nearest dollar amount.)

Explanation / Answer

1) 7,150,000/1.56 = $ 4,583,333

2)7,150,000*1.56 =$ 11,154,000

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