2. Suppose a small company considers expanding its business. Buying new machineryand related equipment will cost $200,000 (which the owner has available from pastprofits). Owner has calculated that that investment will raise revenues by $23,000 peryear. The owner also estimates that it will become necessary to replace the newmachinery after 8 years. Should the owner buy the additional machinery if the realinterest rate is 3 percent? What if it were 3.5 percent? Since this is company's cashflow, should the owner care about the interest rate at all?

In economics, present values refer to the current value of a future stream of cash flow. The net…

Answered: 2. Suppose a small company considers…

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Assume that at the end of year 0 you invested $100,000 in an investment fund. Since then the annual returns earned by this fund have been as follows: End of Year 1 2 3 Observed Return A. $87,319. B. $90,973. C. $109,683. D. $114,015. 15.00% -40.00% 35.00% It is now the end of year 3 and you expect to earn the same average annual return that you earned over the three-year period above. Based on this expectation, the value of your original $100,000 investment at the end of year 4 will be closest to:

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