A company plans to modernize its facilities in 8 years. They estimate saving $5,783 per month if they sell some of their machines now, and salvage them for $28,671. They also think 4 years from now their current $3,510 per month O & M costs will increase by 0.16% per month until they sell the rest of the machines to modernize. How much capital will they have available to modernize if they place all the savings into an account that pays them a nominal 20.30% rate, compounded 5 periods per year?
A company plans to modernize its facilities in 8 years. They estimate saving $5,783 per month if they sell some of their machines now, and salvage them for $28,671. They also think 4 years from now their current $3,510 per month O & M costs will increase by 0.16% per month until they sell the rest of the machines to modernize. How much capital will they have available to modernize if they place all the savings into an account that pays them a nominal 20.30% rate, compounded 5 periods per year?
Chapter10: Capital Budgeting: Decision Criteria And Real Option
Section: Chapter Questions
Problem 3P
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A company plans to modernize its facilities in 8 years. They estimate saving $5,783 per month if they sell some of their machines now, and salvage them for $28,671. They also think 4 years from now their current $3,510 per month O & M costs will increase by 0.16% per month until they sell the rest of the machines to modernize. How much capital will they have available to modernize if they place all the savings into an account that pays them a nominal 20.30% rate, compounded 5 periods per year?
Answer is 358,545.998
(Please explain the steps of how to reach to such a result)
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