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 $42,500 10,500 10,500 10,500 + replace $52,500 9,000 9,000 9,000 9,000 + replace 4 These costs are expressed in real terms. Suppose that technological change is expected to reduce costs by 10% per year. There will be new machines in year 1 that cost 10% less to buy and operate than A and B. In year 2, there will be a second crop of new machines incorporating a further 10% reduction, and so on. Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager for that machine's economic life, what annual rental payment would you have to charge at the end of the first year and how would this alter in subsequent years given the expected technological changes? Assume a 9% real discount rate and ignore E taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) Machine A Year 1 rent Year 2 rent Year 3 rent Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager for that machine's economic life, what annual rental payment would you have to charge at the end of the first year and how would this alter in subsequent years given the expected technological changes? Assume a 9% real discount rate and ignore taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) Machine A Year 1 rent Year 2 rent Year 3 rent Machine B Year 1 rent Year 2 rent Year 3 rent Year 4 rent
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 $42,500 10,500 10,500 10,500 + replace $52,500 9,000 9,000 9,000 9,000 + replace 4 These costs are expressed in real terms. Suppose that technological change is expected to reduce costs by 10% per year. There will be new machines in year 1 that cost 10% less to buy and operate than A and B. In year 2, there will be a second crop of new machines incorporating a further 10% reduction, and so on. Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager for that machine's economic life, what annual rental payment would you have to charge at the end of the first year and how would this alter in subsequent years given the expected technological changes? Assume a 9% real discount rate and ignore E taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) Machine A Year 1 rent Year 2 rent Year 3 rent Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager for that machine's economic life, what annual rental payment would you have to charge at the end of the first year and how would this alter in subsequent years given the expected technological changes? Assume a 9% real discount rate and ignore taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.) Machine A Year 1 rent Year 2 rent Year 3 rent Machine B Year 1 rent Year 2 rent Year 3 rent Year 4 rent
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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Transcribed Image Text: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
$42,500
10,500
10,500
10,500 + replace
$52,500
9,000
9,000
9,000
9,000 + replace
4
These costs are expressed in real terms. Suppose that technological change is expected to reduce costs by 10% per year.
There will be new machines in year 1 that cost 10% less to buy and operate than A and B. In year 2, there will be a second crop
of new machines incorporating a further 10% reduction, and so on.
Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager
for that machine's economic life, what annual rental payment would you have to charge at the end of the first year and how
would this alter in subsequent years given the expected technological changes? Assume a 9% real discount rate and ignore
E taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
Machine A
Year 1 rent
Year 2 rent
Year 3 rent
Transcribed Image Text:Suppose you are Borstal's financial manager. If you had to buy one or the other machine and rent it to the production manager
for that machine's economic life, what annual rental payment would you have to charge at the end of the first year and how
would this alter in subsequent years given the expected technological changes? Assume a 9% real discount rate and ignore
taxes. (Do not round intermediate calculations. Enter your answers as a positive value rounded to 2 decimal places.)
Machine A
Year 1 rent
Year 2 rent
Year 3 rent
Machine B
Year 1 rent
Year 2 rent
Year 3 rent
Year 4 rent
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