A plant manager is not sure whether he will get the approval to buy new equipment for automating an engine assembly line now or at some future time within the next three years. In order to have the money whenever he is given the go-ahead, he has asked you to tell him what the equipment is likelyto cost in each of the next three years. The cost of the equipment today is $300,000. How much will it cost at the end of years 1, 2, and 3, if the cost increases only by the inflation rate of 4% per year? Use a market interest rate of 15% per year.

A plant manager is not sure whether he will get the approval to buy new equipment for automating an engine assembly line now or at some future time within the next three years. In order to have the money whenever he is given the go-ahead, he has asked you to tell him what the equipment is likelyto cost in each of the next three years. The cost of the equipment today is $300,000. How much will it cost at the end of years 1, 2, and 3, if the cost increases only by the inflation rate of 4% per year? Use a market interest rate of 15% per year.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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