After starting to turn significant profit, Lumyn Electronics decided that an inv

Question

After starting to turn significant profit, Lumyn Electronics decided that an investment account for their future expansion plans is now necessary. The company's goal is to expand to a major mall location for which $100,000 would be needed. In years 3 and 5 of the initial investment plan the economy was not as strong and therefore the interest made on the investment account was 6% through years 3 & 4, and 10% through year 5. Given this new information, will Lumyn be able to reach its initial goal of $100,000?

1. Given this new information, will Lumyn Electronics be able to reach its initial goal of $100,000?

2. If Lumyn Electronics is not able to reach its initial goal of $100,000, determine what rate of interest on the investment will be needed in year 6 to reach the goal.

Explanation / Answer

Initial cost required = $100000

interest income made for 5 years would be :

1-4 years = 6%

5th year = 10%

1-4 year = 100000*6% = 6000*4 = 24000

5th year = 100000*10% = 10000

hence total return would be 34000

hence Lumyn wont be able to reach 100000 target

2) the rate in 6th year has to be 66% return because the company has achieved 34000 and hence 100000-34000 = 66000 target to reached .Hence 66% in 6th year to reach the goal.

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