ntractors are preparing to replace critical earthmoving plants and equipment so that they can consolidate future bids. The anticipated cost of the digger with a maximum-sized bucket is £85,000. It needs to be bought in 4 years’ time. However, the industrial development fund is willing to loan XXXX contractors at a rate of 12% per annum if they can purchase the digger today. The accountant thinks there is a possibility of outright purchase of the digger in 4 years’ time if the company can create a sinking fund at a rate of 6% per annum Task: Explain how the financial health of XXXX contractors is able to influence the decision of outright purchase using a loan today or the creation of a sinking fund for the next 4 years

ntractors are preparing to replace critical earthmoving plants and equipment so that they can consolidate future bids. The anticipated cost of the digger with a maximum-sized bucket is £85,000. It needs to be bought in 4 years’ time. However, the industrial development fund is willing to loan XXXX contractors at a rate of 12% per annum if they can purchase the digger today. The accountant thinks there is a possibility of outright purchase of the digger in 4 years’ time if the company can create a sinking fund at a rate of 6% per annum Task: Explain how the financial health of XXXX contractors is able to influence the decision of outright purchase using a loan today or the creation of a sinking fund for the next 4 years

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 4P

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