Question
In: Economics
A computer manufacturing company is trying to decide whether to purchase specialized assembly equipment today or...
A computer manufacturing company is trying to decide whether to
purchase specialized assembly equipment today
or to wait 5 years from now, when the equipment will be first
needed.
If you were to purchase the equipment today it would cost:
$403,000
5 years from now the equipment would cost: $634,738
The bank is paying 9.00% interest per year, compounded
monthly.
Should you buy the equipment now or wait 5 years to buy the
equipment?
Solutions
Expert Solution
If you wait for 5 years:
Interest rate per month (i) = 9% / 12 = 0.75%
n = 12 * 5 years = 60
Present worth of the cost = 634,738( P/F, 0.75%, 60)
= 634,738(0.6387)
= $405,407
Since the Present worth of the cost of the equipment (i.e., $405,407), if purchased after 5 years, is greater than the cost of equipment if purchased now (i.e., $403,000), therefore, you should buy the equipment now.
Rahul Sunny answered 1 year agoRelated Solutions
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