A Texas chemical company had to file for bankruptcy because of a nationwide phase-out of methyl tertiary butyl ether (MTBE). The company is in the planning phase of reorganizing and expects to invest $50 million in a new ethanol production facility. Determine the revenue necessary each month to recover its investment in 3 years, plus interest at a rate of 2% per month, compounded continuously. Solve by (a) formula, and (b) spreadsheet function.
What will be an ideal response?
(a) i = e 0.02 – 1 = 2.02% per month
A = 50,000,000(A/P,2.02%,36)
= 50,000,000{[0.0202(1 + 0.0202) 36 ]/[(1 + 0.0202) 36 – 1]}
= 50,000,000(0.03936)
= $1,967,941
(b) = - PMT(EFFECT(2%,10000),36,50000000) displays $1,967,990
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What will be an ideal response?