A proximity sensor attached to the tip of an endoscope could reduce risks during eye surgery by alerting surgeons to the location of critical retinal tissue. If an eye surgeon expects that by using this technology he may avoid lawsuits of $0.6 and $1.35 million 2 and 5 years from now, respectively, how much could he afford to spend now provided his out-of- pocket costs for the lawsuits would be only 10% of the total amount of each suit? Use an interest rate of 10% per year.
What will be an ideal response?
P = 600,000(0.10)(P/F,10%,2) + 1,350,000(0.10)(P/F,10%,5)
= 60,000(0.8264) + 135,000(0.6209)
= $133,406
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