During a recession, the price of goods and services goes down because of low demand. A company that makes Ethernet adapters is planning to expand its production facility at a cost of $200,000 five years from now. However, a contractor who needs work has offered to do the job for $100,000 if the company will do the expansion now instead of five years from now. If the interest rate is 10% per year. a) How much of a discount is the company getting? b) How much is the interest amount the contractor is getting in five years if the company accept the offer to do expansion now?

During a recession, the price of goods and services goes down because of low demand. A company that makes Ethernet adapters is planning to expand its production facility at a cost of $200,000 five years from now. However, a contractor who needs work has offered to do the job for $100,000 if the company will do the expansion now instead of five years from now. If the interest rate is 10% per year. a) How much of a discount is the company getting? b) How much is the interest amount the contractor is getting in five years if the company accept the offer to do expansion now?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter17: Long-term Investment Analysis

Section: Chapter Questions

Problem 10E

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