Sixteen years ago, the Archer Corporation borrowed $6,350,000. Since then, cumulative inflation has been 87 percent (a compound rate of approximately 4 percent per year). a. When the firm repays the original $6,350,000 loan this year, what will be the effective purchasing power of the $6,350,000? (Hint: Divide the loan amount by one plus cumulative inflation).
b. To maintain the original $6,350,000 purchasing power, how much should the lender be repaid? (Hint: Multiply the loan amount by one plus cumulative inflation).