Assume a firm buys a new machine this year at a cost of $12,600 that will lead to savings of $6,600 after one year, $4,840 more after the second year and another $4,000 after the third year. Then the machine will become obsolete and no further savings will accrue. Is this a worthwhile investment if we assume that there is no inflation and that the market rate of interest remains at i = 10% over the three year period?
Assume a firm buys a new machine this year at a cost of $12,600 that will lead to savings of $6,600 after one year, $4,840 more after the second year and another $4,000 after the third year. Then the machine will become obsolete and no further savings will accrue. Is this a worthwhile investment if we assume that there is no inflation and that the market rate of interest remains at i = 10% over the three year period?
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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Assume a firm buys a new machine this year at a cost of $12,600 that will lead to
savings of $6,600 after one year, $4,840 more after the second year and another $4,000 after
the third year. Then the machine will become obsolete and no further savings will accrue. Is
this a worthwhile investment if we assume that there is no inflation and that the market rate
of interest remains at i = 10% over the three year period?
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