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A regional infrastructure building and maintenance contractor is trying to decide whether to buy a new compact horizontal directional drilling (HDD) machine now or wait to buy it 2 years from now (when a large pipeline contract will require the new equipment). The HDD machine will include an innovative pipe loader design and maneuverable undercarriage system. The cost of the system is $75,000 if purchased now or $90,000 if purchased 2 years from now. In the latter case, the company needs to pay to lease the machine for the first two years, at a lease price of $5,000 per year. Suppose that the company uses a real interest rate of 10% per year. Determine if the company should buy now or later (and lease the drilling machine in the meanwhile) in the following two settings: (a) Without any adjustment for inflation (i.e., assuming there is no inflation at all). (b) With inflation considered assuming that the inflation rate is 7% per year in the next two years. Method: Formula or Factors. You don't need to submit the cash flow diagram for this problem

A regional infrastructure building and maintenance contractor is trying to decide whether to buy a new compact horizontal directional drilling (HDD) machine now or wait to buy it 2 years from now (when a large pipeline contract will require the new equipment). The HDD machine will include an innovative pipe loader design and maneuverable undercarriage system. The cost of the system is $75,000 if purchased now or $90,000 if purchased 2 years from now. In the latter case, the company needs to pay to lease the machine for the first two years, at a lease price of $5,000 per year. Suppose that the company uses a real interest rate of 10% per year. Determine if the company should buy now or later (and lease the drilling machine in the meanwhile) in the following two settings: (a) Without any adjustment for inflation (i.e., assuming there is no inflation at all). (b) With inflation considered assuming that the inflation rate is 7% per year in the next two years. Method: Formula or Factors. You don't need to submit the cash flow diagram for this problem

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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A regional infrastructure building and maintenance contractor is trying to decide whether to buy a new compact horizontal directional drilling (HDD) machine now or wait to buy it 2 years from now (when a large pipeline contract will require the new equipment). The HDD machine will include an innovative pipe loader design and maneuverable undercarriage system. The cost of the system is $75,000 if purchased now or $90,000 if purchased 2 years from now. In the latter case, the company needs to pay to lease the machine for the first two years, at a lease price of $5,000 per year. Suppose that the company uses a real interest rate of 10% per year. Determine if the company should buy now or later (and lease the drilling machine in the meanwhile) in the following two settings: (a) Without any adjustment for inflation (i.e., assuming there is no inflation at all). (b) With inflation considered assuming that the inflation rate is 7% per year in the next two years. Method: Formula or Factors. You don't need to submit the cash flow diagram for this problem
Transcribed Image Text:A regional infrastructure building and maintenance contractor is trying to decide whether to buy a new compact horizontal directional drilling (HDD) machine now or wait to buy it 2 years from now (when a large pipeline contract will require the new equipment). The HDD machine will include an innovative pipe loader design and maneuverable undercarriage system. The cost of the system is $75,000 if purchased now or $90,000 if purchased 2 years from now. In the latter case, the company needs to pay to lease the machine for the first two years, at a lease price of $5,000 per year. Suppose that the company uses a real interest rate of 10% per year. Determine if the company should buy now or later (and lease the drilling machine in the meanwhile) in the following two settings: (a) Without any adjustment for inflation (i.e., assuming there is no inflation at all). (b) With inflation considered assuming that the inflation rate is 7% per year in the next two years. Method: Formula or Factors. You don't need to submit the cash flow diagram for this problem
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