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A US Auto Maker Plans to Build Two More Plants in in China

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A U.S. auto maker plans to build two more plants in China as it aims to harness continued growth in Asia. The company estimates that it must make annual investments of $40 million over a 8- year period. How much would the company have to invest now at an interest rate of 3% per year to sufficiently provide for the annual payments, if the first payment will begin 4 years from now?


Definitions:

Total Returns

Total returns include all sources of investment return including capital gains, dividends, and interest, measured over a specific time period.

Variance

A statistical measure of the dispersion of data points in a data series around the mean.

Total Percentage Return

The total return on an investment, expressed as a percentage, that includes all dividends, interest, and capital gains.

Dividend

Money given to shareholders by a corporation, usually sourced from the firm's profits.

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