Assume a firm is planning to buy some new equipment.. Pk= $10,500 r= 15% MRP of the machine = $6,700 Assume the machine has a life span of two years and, therefore will generate an MRP of $6700 each year for two years.
Assume a firm is planning to buy some new equipment.. Pk= $10,500 r= 15% MRP of the machine = $6,700 Assume the machine has a life span of two years and, therefore will generate an MRP of $6700 each year for two years.
Chapter1: Making Economics Decisions
Section: Chapter Questions
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Transcribed Image Text:Assume a firm is planning to buy some new equipment..
Pk= $10,500
r= 15%
MRP of the machine = $6,700
Assume the machine has a life span of two years and, therefore will generate an
MRP of $6700 each year for two years.
Pk is the price if the machine, r is the interest rate, and MRP is the marginal revenue
product of the machine.
A) What is the Present Discounted Value of the benefit(MRP) of buying the
machine (capital) ? Show your work.(8 pts)
B) What is the Net Present Value ? Show your work. (3 pts)
C) Buy the machine ? Yes or No? (1 pt )
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