Meadow Brook Manor Would Like to Buy Some Additional Land

question 23

Multiple Choice

Meadow Brook Manor would like to buy some additional land and build a new assisted living center.The anticipated total cost is $20.5 million.The CEO of the firm is quite conservative and will only do this when the company has sufficient funds to pay cash for the entire construction project.Management has decided to save $1.2 million a quarter for this purpose.The firm earns 6.25 percent,compounded quarterly,on the funds it saves.How long does the company have to wait before expanding its operations?

• A)3.09 years
• B)3.82 years
• C)4.46 years
• D)4.82 years
• E)4.91 years

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Definitions:

Fed

Short for the Federal Reserve System, which is the central banking system of the United States responsible for monetary policy.

Government Securities

Debt instruments issued by a government to finance its expenditures, offering a return to investors.

Simple Money Multiplier

The reciprocal of the required reserve ratio, or 1/r; the maximum multiple of fresh reserves by which the money supply can increase.

Required Reserve Ratio

The fraction of deposits that banks are required to hold in reserve, either in their vaults or with the central bank, not to be used for loans.