In an effort to reduce pipe breakage, water ham­mer, and product agitation, a French chemical company plans to install several chemically resis­tant pulsation dampeners. The cost of the dampen­ers today is €106,000, but the chemical company has to wait until a permit is approved for its bidi­rectional port-to-plant product pipeline. The per­mit approval process will take at least 2 years be­cause of the time required for preparation of an environmental impact statement. Because of in­tense foreign competition, the manufacturer plans to increase the price only by the inflation rate of 3% each year. Determine the cost of the dampeners in 2 years in terms of (a) then-current euros, and (b) constant-value euros.

What will be an ideal response?


(a) Future cost = 106,000(1.03)²
= €112,455

(b) Constant-value cost = €106,000

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