The strategic plan of a solar energy company that manufactures high-efficiency s

Question

The strategic plan of a solar energy company that manufactures high-efficiency solar cells includes an expansion of its physical plant in 4 years. The engineer in charge of planning estimated the expenditure required now to be $8 million, but in 4 years, the cost will be higher by the amount equal to the inflation rate. If the company sets aside $7 million now into an account that earns interest at 7% per year, what will the inflation rate have to be in order for the company to have exactly the right amount of money for the expansion?

Explanation / Answer

7(1+0.07)4 = 8 (1+x)4

x = 3.48%

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