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Future and present value of money

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Future and Present Value of Money

Professor Willis Corporation (PWC) needs to bring in additional money to support future ventures. PWC currently has $1,000,000 in the bank. The President of the company has determined that they need to expand and build a new location that will double their capacity size. After talking to a local contractor, PWC needs $1,500,000 to build the second location. The contractor has said that PWC can pay for the expansion when the building is complete in 4 years. PWC utilizes Willis banking that currently provides them an annual interest rate of 8%. 

Based on this scenario, the President of PWC asks you, their financial manager, the following questions:

1) If we did not touch the money that is currently in the bank, how much more money will the company need to earn at the end of the 4th year to pay for the second location?

2) How much money would we need in the bank today in order to pay for the second location without having to earn additional money?

3) Knowing that we need $1.5M in 4 years with earnings unknown, PWC may need to change banks. What is the interest rate that we would need to find from a new bank in order to achieve our goal?

4) If the new interest rate is not achievable, how long would it take to earn the money that is needed under the current conditions?

Reference no: EM132473916

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