Abbott Mining Systems wants to determine whether it should buy now or buy later for upgrading a piece of equipment used in deep mining operations. If the company selects plan N, the equipment will be purchased now for $200,000. However, if the company selects plan L, the purchase will be deferred for 3 years when the cost is expected to rise rapidly to $340,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 6.75% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
Abbott Mining Systems wants to determine whether it should buy now or buy later for upgrading a piece of equipment used in deep mining operations. If the company selects plan N, the equipment will be purchased now for $200,000. However, if the company selects plan L, the purchase will be deferred for 3 years when the cost is expected to rise rapidly to $340,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 6.75% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
Chapter23: Corporate Restructuring
Section: Chapter Questions
Problem 11P
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Abbott Mining Systems wants to determine whether it should buy now or buy later for upgrading a piece of equipment used in deep mining operations. If the company selects plan N, the equipment will be purchased now for $200,000. However, if the company selects plan L, the purchase will be deferred for 3 years when the cost is expected to rise rapidly to $340,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 6.75% per year. From only an economic perspective, determine whether the company should purchase now or later (a) when inflation is not considered and (b) when inflation is considered.
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