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    Archer Corporation - Purchasing Power

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    14. Twelve years ago, the Archer Corporation Borrowed $6,000,000. Since then, cumulative inflation has been 80 percent (a compound rate of approximately 5 percent per year).

    a. When the firm repays the original $6,000,000 loan this year, what will be the effective purchasing power of the $6,000,000? (Hint: Divide the loan amount by one plus cumulative inflation).

    b. To maintain the original $6,000,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation)
    c. If the lender knows he will receive only $6,000,000 in repayment after 12 years, how might he be compensated for the loss in purchasing power? A descriptive answer is acceptable.

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    Solution Preview

    14. Twelve years ago, the Archer Corporation Borrowed $6,000,000. Since then, cumulative inflation has been 80 percent (a compound rate of approximately 5 percent per year).

    a. When the firm repays the original $6,000,000 loan this year, what will be the effective purchasing power of the ...

    Solution Summary

    This solution is comprised of a detailed explanation to find the effective purchasing power of the $6,000,000.

    $2.19

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