Suppose a firm is investing in a pollution control technology to meet a regulation in three years that can reduce its emissions for any given level of output. The technology costs $40,000 to install now, but will cost only $10,000 three years later due to expected innovations. If the firm does not comply, it will have to pay fines with the amount of $5000 in the next year, $10,000 in two years, and $15,000 in three years. With an interest rate of 3%, should the firm install this technology now or later?
Suppose a firm is investing in a pollution control technology to meet a regulation in three years that can reduce its emissions for any given level of output. The technology costs $40,000 to install now, but will cost only $10,000 three years later due to expected innovations. If the firm does not comply, it will have to pay fines with the amount of $5000 in the next year, $10,000 in two years, and $15,000 in three years. With an interest rate of 3%, should the firm install this technology now or later?
Economics: Private and Public Choice (MindTap Course List)
16th Edition
ISBN:9781305506725
Author:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Publisher:James D. Gwartney, Richard L. Stroup, Russell S. Sobel, David A. Macpherson
Chapter27: Investment, The Capital Market, And The Wealth Of Nations
Section: Chapter Questions
Problem 13CQ
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Suppose a firm is investing in a pollution control technology to meet a regulation in three years that can reduce its emissions for any given level of output. The technology costs $40,000 to install now, but will cost only $10,000 three years later due to expected innovations. If the firm does not comply, it will have to pay fines with the amount of $5000 in the next year, $10,000 in two years, and $15,000 in three years. With an interest rate of 3%, should the firm install this technology now or later?
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