A multinational security software company is planning an overseas expansion that will cost $50 million of today’s dollars 3 years from now. Due to a robust economy in Europe, the cost is expected to increase by 15% per year in each of the next 3 years. Assuming the inflation rate is 4% per year, determine the required annual deposit into a fund that earns the market rate of 10% per year to ensure that the amount needed in 3 years will be available. Also, write the spreadsheet function that displays the annual deposit directly.
What will be an ideal response?
Use 15% rate to determine cost of expansion, then find A using market rate.
F = 50,000,000(F/P,15%,3)
= 50,000,000(1.5209)
= $76,045,000
A = 76,045,000 (A/F,10%,3)
= 76,045,000 (0.30211)
= $22,973,955 per year
Function: = - PMT(10%,3,,- FV(15%,3,,50000000)) displays A = $22,973,942
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