Jamilah and Mariah own a small chain of McDonald's restaurants that is valued at $2,300,000. They believe that the chain will grow in value at 12% per year compounded annually for the next 5 years. If they sell the chain, the funds will be invested at a rate of 6% compounded semiannually. They expect inflation to be 4% per year for the next 5 years. Answer the following questions, rounding answers to the nearest dollar at each step. i. Find the future value of the chain after 5 years. Then find the price they should sell the chain for if they wish to have the same future value at the end of 5 years. ii. Find the future value of the chain if it grows at only 2% per year for 5 years. Then find the price they should ask for the chain given a 2% growth rate per year.
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Plugging in the values: FV = $2,300,000 * (1 + 0.12)^5 FV = $2,300,000 * (1.12)^5 FV = $2,300,000 * 1.762341 FV = $4,056,161 Show more…
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