A.9. The cost of heavy construction dredging equipment is rising at the rate of 6 percent com- pounded every year. A sum of $400,000 is now on hand. Two alternatives are available: (a) One $400,000 unit if purchased now should serve the needs of a growing contractor for the next 10 years. (b) One $250,000 unit may be purchased now and another identical unit purchased in five years at the price increase defined above. At what interest rate must the extra $150,000 left on hand be invested in order to provide the needed cash in five years? Ne- glect obsolescence costs and comparative operating costs.

A.9. The cost of heavy construction dredging equipment is rising at the rate of 6 percent com- pounded every year. A sum of $400,000 is now on hand. Two alternatives are available: (a) One $400,000 unit if purchased now should serve the needs of a growing contractor for the next 10 years. (b) One $250,000 unit may be purchased now and another identical unit purchased in five years at the price increase defined above. At what interest rate must the extra $150,000 left on hand be invested in order to provide the needed cash in five years? Ne- glect obsolescence costs and comparative operating costs.

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter10: Project Cash Flows And Risk

Section: Chapter Questions

Problem 5PROB

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