An engineer who is now 65 years old began planning for retirement 40 years ago. At that time, he thought that if he had $1 million when he retired, he wouldhave more than enough money to live his remaining life in luxury. Assume the inflation rate over the 40-year time period averaged a constant 3.7% per year.a) What is the CV purchasing power of his $1 million at age 65? (Hint: Use the day he started 40 years ago as the base year.)b) How many future dollars should he have accumulated over the 40 years to have a CV purchasing power equal to $1.3 million at his current age of 65?

An engineer who is now 65 years old began planning for retirement 40 years ago. At that time, he thought that if he had $1 million when he retired, he wouldhave more than enough money to live his remaining life in luxury. Assume the inflation rate over the 40-year time period averaged a constant 3.7% per year.a) What is the CV purchasing power of his $1 million at age 65? (Hint: Use the day he started 40 years ago as the base year.)b) How many future dollars should he have accumulated over the 40 years to have a CV purchasing power equal to $1.3 million at his current age of 65?

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 2.6IP

See similar textbooks

Similar questions

Well-managed companies set aside money to pay for emergencies that inevitably arise in the course of doing business. If a commercial solid waste recycling and disposal company puts 0.5% of its after-tax income into such an account, how much will the company have after 7 years, provided the company’s after-tax income averages $15.2 million per year? The inflation and market rates are 5% per year and 9% per year, respectively.
You just made an investment in an insurance policy that is guaranteed to pay you $1.8 million 20 years from now provided you live that long. What will be the purchasing power of that amount with respect to today’s dollars if the market interest rate is 8% per year and the inflation rate stays at 3.8% per year over the 20-year period?
A very generous grandfather is planning to leave his only granddaughter well off when she reaches the age of 25. He plans to deposit a lump sum now, which is her 2nd birthday, such that she will have enough money to live comfortably without working for a salary. He wants her to receive an amountthat will have the same purchasing power as $2 million today. If he can invest the money and earn an average market interest rate of 8% per year while the inflation rate averages 4% per year, how much must he deposit now?
For many years, college cost (including tuition, fees, room, and board) increases have been higher than the inflation rate, averaging 5% to 8% per year. According to the College Board’s Trends in College Pricing, the average total costs in 2015 dollars were $19,548 for students attending in-state 4-year public colleges and universities and $43,921 for students at 4-year private colleges and universities. Assume an additional $4000 per year for textbooks, supplies, transportation, and other expenses. Using a 7% per year inflation rate, (a) how much can a sophomore high-school student expect to spend on in-state tuition, fees, room, and board for the freshman year (3 years from now) at a 4-year public university, and (b) what is the estimated total cost for the second year at the university, if textbooks, supplies, etc. also increase at 7% per year?
You just made an investment in an insurance policy that is guaranteed to pay you $2.3 million 20 years from now provided you live that long. What will be the purchasing power of that amount with respect to today’s dollars if the market interest rate is 8% per year and the inflation rate stays at 4.7% per year over the 20-year period? The purchasing power of this amount is $ .
WHAT IS THE INFLATION RATE IF THE PRICE OF AN ELECTRIC FAN BECOMES P2000.00 IN 5 YEARS FROM THE ORIGINAL PRICE OF P1200.00?
The cost of a well-equipped F-150 truck was $29,350 three years ago. If the cost increased only by the inflation rate and the price today is $33,015, the inflation rate over the 3-year period was closest to: (a) 3% (b) 4% (c) 5% (d ) 6%
The Fischer-Tropsch (F-T) process was developed in Germany in 1923 to convert synthesis gas (i.e., a mixture of hydrogen and carbon monoxide) into liquid with some gaseous hydrocarbons. Interestingly, the F-T process was used in World War II to make gasoline and other fuels. The U.S. military can save one billion gallons per year of foreign oil by blending its jet fuel with F-T products. If the government expects inflation to average 3% per year, what is the equivalent uniform annual savings in fuel? The government's MARR is 7% per year, the study period is 40 years, and one gallon of jet fuel costs $2.80. The AW is $_______billion.
A small mechanical consulting company is examining its future cash flow requirements. The president expects to replace office machines and IT equipment at various times over a 6-year planning period. Specifically, the company expects to spend $6000 two years from now, $9000 three years from now, and $5000 six years from now. What is the purchasing power (with respect to today’s dollars) of each expenditure in its respective year, if the inflation rate is 4% per year?
If the Consumer Price Index was 208.5 on January 1, 2010, and 10 years after it was 516.71. What was the inflation rate, compounded annually, over that 10-year period? If that rate continues to hold for the next 10 years, what Consumer Price Index can be expected on January 1, 2030?
A European-based cattle genetics engineering research lab is planning for a major expenditure on research equipment. The lab needs $5 million of today’s dollars so that it can make the acquisition 4 years from now. The inflation rate is steady at 5% per year. (a) How many future dollars will be needed when the equipment is purchased if purchasing power is maintained? (b) What is the required amount of the annual deposit into a fund that earns the market rate of 10% per year to ensure that the amount calculated in part (a) is accumulated? (c) Write a single-cell spreadsheet function that immediately displays the correct annual deposit required.
An industrial robot with a controller, teach pendants, and job-specific peripherals has an initial cost of $85,000 now, and the future cost will increase exactly by the inflation rate. The cost of a similar robot 3 years from now at a market interest rate of 10% per year and inflation rate of 4% per year is closest to: (a) $95,610 (b) $102,414 (c) $125,931 (d ) $127,261