The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs: Year Machine A $ Machine B $ 0 40,000.00 50,000.00
The Borstal Company has to choose between two machines that do the same job but have different lives. The two machines have the following costs:
|
Year |
Machine A $ |
Machine B $ |
|
0 |
40,000.00 |
50,000.00 |
|
1 |
10,000.00 |
8,000.00 |
|
2 |
10,000.00 |
8,000.00 |
|
3 |
10,000.00 + replacement |
8,000.00 |
|
4 |
|
8,000.00 + replacement |
These costs are expressed in real terms.
1. Suppose you are Borstal’s
2. Which machines should Borstal buy?
3. Suppose you actually do buy one of the machines and rent it to the production manager. How much would you actually have to charge in each future year if there is steady 8% per year inflation?
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