A plant manager is not sure whether he will get the approval to buy new equipment for automating an engine assembly line now or at some future time within the next 3 years. In order to have the money whenever he is given the go-ahead, he has asked you to tell him what the equipment is likely to cost in each of the next 3 years. The cost of the equipment today is $300,000. And the MARR is 15% per year. (a) How much will it cost at the end of years 1, 2, and 3 if the cost increases only by the inflation rate of 4% per year? (b) What case is this from the descriptions in Section 14.3?
What will be an ideal response?
(a) Cost, year 1 = 300,000(1 + 0.04)¹
= $312,000
Cost, year 2 = 300,000(1 + 0.04)²
= $324,480
Cost, year 3 = 300,000(1 + 0.04)³
= $337,459
(b) Case 1
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