Contemporary Mathematics for Business and Consumers, Third Edition

Robert A. Brechner
Copyright © 2003 Thomson/South-Western

Level 2
Chapter 11 - Assessment Test - Exercise 24

Wentworth Industries is planning to expand its production facility in a few years. New plant
construction costs are estimated to be $4.50 per square foot. The company invests
$850,000 today at 8% interest compounded quartely.

a. How many square feet of new facility could be built after 3 1/2 years?

Number of years = 3 1/2

Periods per year = 4

Nominal rate = 8.0%

Interest rate per period = 2.0%

Compounding periods = 14

Table factor = 132%

Investment = $85,000.00

Compound amount = $112,155.69

Cost per square foot = 4.50

Square feet = 24,923.49

b. If the company waits 5 years, but construction costs increase to $5.25 per
square foot, how many square feet could be built? What do you recommend?

Number of years = 5

Compounding periods = 20

Table factor = 1.48595

Compound amount = $126,305.53

Cost per square foot = 5.00

Square feet = 25,261.11

Recommendation: