The strategic plan of a solar energy company that manufactures high-efficiency solar cells includes an expansion of its physical plant in 4 years. The engineer in charge of planning estimates the expenditure required now to be $8 million, but in 4 years, the cost will be higher by an amount equal to the inflation rate. If the company sets aside

$7,000,000 now into an account that earns interest at an advertised 7% per year, what can the annual inflation rate be to have exactly the right amount of money for the expansion? Solve

(a) by hand, and

(b) using a spreadsheet.

Capital Recovery with Inflation