You are the finance manager for Olympia Industries. The company plans to purchase $1,000,000 in new assembly line machinery in 5 years.

a. How much must be set aside now at interest compounded semiannually to accumulate the $1,000,000 in 5 years?

b. If the inflation rate on this type of equipment is 4% per year, what will be the cost of the equipment in 5 years, adjusted for inflation?

c. Use the inflation-adjusted cost of the equipment to calculate how much must be set aside now.

d. Use the present value formula to calculate how much would be required now if you found a bank that offered 6% interest compounded daily.

To calculate: The present value (principal) for an investment with compound amount $1,000,000 is made for 5 years at 6% interest compounded semiannually. Also, round your answer to the nearest cent.

Given information:

An investment with compound amount $1,000,000 is made for 5 years at 6% interest compounded semiannually.

Formula used:

Compounding period can be calculated by the formula given below:

Compounding periods=Term of investments(years)×m

Here, m is the period per year.

The interest rate per period can be calculated by dividing the annual, or nominal, rate by the number of periods per year,

Interest rate per period=Nominal ratePeriod per year

The present value (principal) can be calculated by the formula given below:

Principal=Table factor×Compound amount

In table 11-2, the table factor is the intersection of the rate-per-period column and the number-of-periods row is the present value of $1 at compound interest.

Calculation:

Consider the compound amount $1,000,000 is made for 5 years at 6% interest compounded semiannually and solve as shown below:

Since, the variables- compound amount, time period (years), nominal rate and interest compounded are given; therefore, the compounding period can be calculated as below:

Compounding&

To calculate: The compound amount for an investment with the principal $1,000,000 is made for 5 years at 4% interest compounded annually. Also, round your answer to the nearest cent.

To calculate: The present value (principal) for an investment with compound amount $1,216,650 is made for 5 years at 6% interest compounded semiannually. Use the inflation-adjusted cost of the equipment as the compound amount. Also, round your answer to the nearest cent.

To calculate: The present value (principal) for an investment with compound amount $1,000,000 is made for 5 years at 6% interest compounded daily. Also, round your answer to the nearest cent.