The cost is estimated to rise by 8.5% in 2017. If the interest rate is 4%, what is the cost of a delay in terms of dollars in 2016?

The cost of replacing a fleet of company trucks with more energy efficient vehicles was $100 million in 2016. The cost is estimated to rise by 8.5% in 2017. If the interest rate is 4%, what is the cost of a delay in terms of dollars in 2016?

A) $5.85 Million

B) $4.33 Million

C) $108.50 Million

D) $104.33 Million

Solutions

Expert Solution

New cost =Current cost*(1+% rise in cost)=100*(1+8.5%)=108.5 million

Present value of new cost=New cost/(1+rate of intrest)^number of discounting periods

=108.5/(1+.04)^1=104.33 million

Thus Cost of delay=Present value of new cost-Current cost=104.33-100

=4.33 million

Thus correct answer is $4.33 Million

jeff jeffy answered 2 years ago

Next > < Previous

Related Solutions

1. A rise in the real rate of interest ________ the opportunity cost of holding an...

1. A rise in the real rate of interest ________ the opportunity cost of holding an inventory of a given size, and therefore ________ desired investment expenditure. Select one: a. decreases; decreases b. decreases; leaves unaffected c. increases; decreases d. decreases; increases e. increases; increases 2. If nominal national income increased by 20% over a certain period of time while real national income increased by 10%, then Select one: a. everybody in the economy became worse off. b. inflation has...

Interest rate with annuity. What are you getting in terms of interest rate if you are...

Interest rate with annuity. What are you getting in terms of interest rate if you are willing to pay $11 comma 000 today for an annual stream of payments of $2 comma 500 for the next 10 years? The next 20 years? The next 50 years? Forever? What are you getting in terms of interest rate if you are willing to pay $11 comma 000 today for an annual stream of payments of $ 2 comma 500 for the...

Interest rate with annuity. What are you getting in terms of interest rate if you are...

Interest rate with annuity. What are you getting in terms of interest rate if you are willing to pay $15,000 today for an annual stream of payments of $2,000 for the next 30 years? The next 60 years? The next 150 years? Forever? What are you getting in terms of interest rate if you are willing to pay $15,000 today for an annual stream of payments of $2,000 for the next 30 years? What are you getting in terms...

a rise in nominal interest rate would cause

The real rate of interest has been estimated to be 4 percent, and the expected long-term...

The real rate of interest has been estimated to be 4 percent, and the expected long-term annual inflation rate is 5 percent. Round your answers to the nearest whole number. Show work on excel please What is the current risk-free rate of return on 1-year Treasury bonds? % If the yield on 10-year U.S. Treasury bonds is 12 percent, what is the maturity risk premium between a 10-year bond and a 1-year bond? % If Delta bonds, scheduled to mature...

What is the distinction between the nominal interest rate and the real interest rate? 4. In a...

What is the distinction between the nominal interest rate and the real interest rate? 4. In a diagram, show the effect on the real interest rate and amount of investment if people’s disposable income increases. 5. Explain how a government budget deficit affects the market for loanable funds. What is the effect on investment? Ignore the possibility of a Ricardo-Barro effect. 6. Before there is any international trade or international lending and borrowing, suppose the world real interest rate is less than the...

Suppose today's exchange rate is $1.480/€. The three-month interest rates on dollars and euros are 4...

Suppose today's exchange rate is $1.480/€. The three-month interest rates on dollars and euros are 4 percent p.a. and 3 percent p.a., respectively. The three-month forward rate is $1.475. A foreign exchange advisory service has predicted that the euro will appreciate to $1.495 within three months. Which strategy using forward contracts would give you the highest profit in the above situation and what will be the annualized return from the strategy? Select one: a. Buy euros forward and sell them...

The table shows the total 4-year cost (in thousands of dollars) and the Graduation rate (nearest...

The table shows the total 4-year cost (in thousands of dollars) and the Graduation rate (nearest percentage) from 4 randomly selected colleges/universities in the U.S. Cost, x 250 138 81 85 Graduation Rate, y 83 92 57 32 The mean of x is 138.5 The standard deviation of x is 78.742 The mean of y is 66 The standard deviation of y is 27.092 The deviations and the z-scores for each x and y value are given below: Note: I...

Plz explain. I will rate. Explain the following terms with respect to TTL specifications: Propagation Delay...

Plz explain. I will rate. Explain the following terms with respect to TTL specifications: Propagation Delay Power Dissipation Fan-in Fan-out

4. [End-to-end Delay] What are the components of end-to-end delay for sending one packet of length...

4. [End-to-end Delay] What are the components of end-to-end delay for sending one packet of length L, over M back to back links, each of transmission rate Ri=R, for i=1,…,M? You do not have any additional information available. A. ML-R B. ML/R C. ML/R D. MPL/R

Subjects