Question

14. Steel is investigating whether it should replace some of its basic oxygen fumace equipment now or wait to do it later. The cost later (ie., 3 years from now) is estimated to be $1,700,000. How much can the company afford to spend now, if its minimum attractive rate of return is 1.5% per month? Use the standard natation (Equivalence When PP > CP) (2 Perinta)

Answer 1

Number of months = 3 x 12 = 36

PV of future cost = $1,700,000 x P/F(1.5%, 36) = $1,700,000 x (1.015)-36 = $1,700,000 x 0.5851

= $994,670