You are the vice president of finance for a manufacturer of scuba diving gear. The company is planning a major plant expansion in 5 years. You have decided to start a sinking fund to accumulate the funds necessary for the project. Your company's investments yield 12% compounded quarterly. It is estimated that $4,000,000 in today's dollars will be required; however, the inflation rate on construction costs and plant equipment is expected to average 7% per year for the next 5 years. Forty Years of Changing Inflation Rates 11.0 10.5 9.0 7.0 7.0 +6.5 5.5 5.0 Percent Inflation 5.0 4.0 3.6 3.6 3.4 3.0 3.0 2.8 3.1 a 3.0 11 2.5 -2.6 2.0 2.1 1.5 1.0 0.12 -1.0 -0.34 '77 79 '81 '83 '85 '87 '89 '91 '93 '95 '99 '01 '03 05 "07"09 '11 '13 '15 '17 '97 Year (a) Use the compound interest concept from Chapter 11 to determine how much (in $) will be required for the project, taking inflation into account. (Use Table 11-1. Round your answer to the nearest cent.) $ (b) What sinking fund payments (in $) will be required at the end of every 3-month period to accumulate the necessary funds? (Use Table 12-1. Round your answer to the nearest cent.) $ Need Help? Read It