Meggitt Systems, a company that specializes in extreme-high-temperature accelerometers, is in- vestigating whether it should update certain equip- ment now or wait and do it later. If the cost now is $280,000, what is the equivalent amount 2 years from now at an interest rate of 12% per year?
Meggitt Systems, a company that specializes in extreme-high-temperature accelerometers, is in- vestigating whether it should update certain equip- ment now or wait and do it later. If the cost now is $280,000, what is the equivalent amount 2 years from now at an interest rate of 12% per year?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Transcribed Image Text:(2.15) Meggitt Systems, a company that specializes in
extreme-high-temperature accelerometers, is in-
vestigating whether it should update certain equip-
ment now or wait and do it later. If the cost now is
$280,000, what is the equivalent amount 2 years
from now at an interest rate of 12% per year?
Expert Solution
Step 1: Introduction to concept of time value of money
The concept of time value of money will be used and applied here. As per the concept of time value of money the worth of money changes with passage of time as money has the power to earn interest. Future value of a present sum of money is computed by compounding the present amount of money.
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