company is considering buying a cnc machine. in todays dollars the maintenance cost for the machine( paid at the end of each year) will be 25,000 26,000 27,000 29,000 32,000 for years 1 to 5. The general inflation rate is estimated to be 7% per year, and the company will receive 14% return (interest) per year on its invested funds during the inflationary period. The company wants to pay for maintenance expenses in equivalent equal payments( in actual

company is considering buying a cnc machine. in todays dollars the maintenance cost for the machine( paid at the end of each year) will be 25,000 26,000 27,000 29,000 32,000 for years 1 to 5. The general inflation rate is estimated to be 7% per year, and the company will receive 14% return (interest) per year on its invested funds during the inflationary period. The company wants to pay for maintenance expenses in equivalent equal payments( in actual

Managerial Economics: A Problem Solving Approach

5th Edition

ISBN:9781337106665

Author:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Publisher:Luke M. Froeb, Brian T. McCann, Michael R. Ward, Mike Shor

Chapter2: The One Lesson Of Business

Section: Chapter Questions

Problem 2.6IP

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Gillespie Gold Products, Inc., is considering the purchase of new smelting equipment. The new equipment is expected to increase production and decrease costs, with a resulting increase in profits. First cost is 40,000, savings per year is 10,000, actual useful life is 5 years, salvage value is 4000. If the average yearly inflation rate for the 5-year study period is 3.5%, what is the real-dollar ATCF that is equivalent to the actual-dollar ATCF? The base time period is year zero
A father wants to save for his eight-year-old son's college expenses. The son will enter college 10 years from now. An annual amount of $40,000 in constant dollars will be required to support the son's college expenses for four years. Assume that these college payments will be made at the beginning of each school year. The future general inflation rate is estimated to be 6% per year, and the market interest rate on the savings account will average 8% compounded annually.(a) What is the amount of the son's freshman-year expense in terms of actual dollars?(b) What is the equivalent single-sum amount at the present time for these college expenses?(c) What is the equal amount, in actual dollars, the father must save each year until his son goes to college?
A couple wants to save for their daughter’s college expenses. The daughter will enter college eight years from now and will need $40,000, $41,000, $42,000 and $43,000 in actual dollars over four college years. Assume that these college payments will be made at the beginning of the school year. The future general inflation rate is estimated to be 6% per year and the annual inflation-free interest rate is 5%. What is the equal amount, in actual dollars, the couple must save each year until their daughter goes to college? A. $11,945 B. $12,142 C. $12,538 D. $11,838
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A father wants to save in advance for his eight-year-old daughter's college expenses. The daughter will enter the college 10 years from now. An annual amount of $20,000 in today's dollars (constant dollars) will be required to support her college expenses for four years. Assume that these college payments will be made at the beginning of each school year. (The first payment occurs at the end of 10 years.) The future general inflation rate is estimated to be 5% per year, and the interest rate on the savings account will be 8% compounded quarterly (market interest rate) during this period. If the father has decided to save only $500 (actual dollars) each quarter, how much will the daughter have to borrow to cover her freshman expenses? A. $2,683 B. $3,128 C. $2,377 D. $1,895
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A father wants to save in advance for his eight-year-old daughter's collegeexpenses. The daughter will enter the college 10 years from now. An annualamount of $20,000 in today's dollars (constant dollars) will be required to support her college expenses for four years. Assume that these college payments will be made at the beginning of each school year. (The first payment occurs at the end of 10 years.) The future general inflation rate is estimated to be 5% per year, and the interest rate on the savings account will be 8% compounded quarterly (market interest rate) during this period. If the father has decided to save only $500 (actual dollars) each quarter, how much will the daughter have to borrow to cover her freshman expenses?(a) $1,920(b)$2,114(c) $2,210(d)$2,377
You are paying a series of five constant-dollar (or real-dollar) uniform payments of $2,025.95 beginning at the end of first year. Assume that the general inflation rate is 15.24% and the market interest rate is 15.24% during this inflationary period.The equivalent present worth of the project is:
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