So, how much can the company spend on this equipment if it will pay $35,000 in year 1, and then amounts increasing by $3,000 each year through year 5? Your borrowing cost is 8% per year. Hint: Arithmetic gradient.
An electrical components manufacturer needs to upgrade the test equipment it uses for its final quality inspections before final shipment. It needs to borrow the money to buy the equipment, and it estimates that with the future revenues it will earn with quality improvements and reduction in warranty claims it can pay a little more each year toward the loan. So, how much can the company spend on this equipment if it will pay $35,000 in year 1, and then amounts increasing by $3,000 each year through year 5? Your borrowing cost is 8% per year. Hint: Arithmetic gradient.
$148,977
$243,000
$176,607
$161,862
