A regional infrastructure building and maintenance contractor must decide to buy a new compact horizontal directional drilling (HDD) machine now, or wait and buy it 2 years from now when a large pipeline contract will require the new equipment. The HDD machine will include an innovative pipeloader design and a maneuverable undercarriage system. The cost of the system is $68,000 if purchased now or an estimated $81,000 if purchased 2 years from now. At i = 10% per year and f = 5% per year, determine if the contractor should buy now or later (a) without any adjustment for inflation, and (b) with inflation considered.
A regional infrastructure building and maintenance contractor must decide to buy a new compact horizontal directional drilling (HDD) machine now, or wait and buy it 2 years from now when a large pipeline contract will require the new equipment. The HDD machine will include an innovative pipeloader design and a maneuverable undercarriage system. The cost of the system is $68,000 if purchased now or an estimated $81,000 if purchased 2 years from now. At i = 10% per year and f = 5% per year, determine if the contractor should buy now or later (a) without any adjustment for inflation, and (b) with inflation considered.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
A regional infrastructure building and maintenance
contractor must decide to buy a new compact horizontal
directional drilling (HDD) machine now, or wait
and buy it 2 years from now when a large pipeline contract
will require the new equipment. The HDD machine
will include an innovative pipeloader design and
a maneuverable undercarriage system. The cost of the
system is $68,000 if purchased now or an estimated
$81,000 if purchased 2 years from now. At i = 10% per
year and f = 5% per year, determine if the contractor
should buy now or later (a) without any adjustment for
inflation, and (b) with inflation considered.
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