A road building contractor has received a major highway construction contract that will require 50,000 m3 of crushed stone each year for 5 years. The needed stone can be obtained from a quarry for S5.80/m3. As an alternative, the contractor has decided to try and purchase the quarry. He believes that if he owned the quarry, the
A road building contractor has received a major highway construction contract that will require 50,000 m3 of crushed stone each year for 5 years. The needed stone can be obtained from a quarry for S5.80/m3. As an alternative, the contractor has decided to try and purchase the quarry. He believes that if he owned the quarry, the
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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A road building contractor has received a major highway construction contract that will require 50,000 m3 of crushed stone each year for 5 years. The needed stone can be obtained from a quarry for S5.80/m3. As an alternative, the contractor has decided to try and purchase the quarry. He believes that if he owned the quarry, the stone would only cost him $4.30/m3. He thinks he could resell the quarry at-the end of 5 years for $40,000. If the contractor uses a 10% interest rate, evaluate how much would he be willing to pay for the quarry?
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