## Related questions with answers

A regional infrastructure building and maintenance contractor is trying to decide whether to buy a new compact horizontal directional drilling (HDD) machine now or wait to buy it 2 years from now (when a large pipeline contract will require the new equipment). The HDD machine will include an innovative pipe loader design and maneuverable undercarriage system. The cost of the system is $68,000 if purchased now or$81,000 if purchased 2 years from now. At a real MARR of 10% per year and an inflation rate of 5% per year, determine if the company should buy now or later (a) without any adjustment for inflation and (b) with inflation considered.

Solution

VerifiedA regional infrastructure building and maintenance contractor needs to decide whether to buy a new compact horizontal directional drilling (HDD) machine now or in 2 years:

(a) without any adjustment for inflation:

$\begin{align*} F&=68,000(F/P,10\%,2)\\ &=68,000\times 1.21\\ &=\$82,280\\ \end{align*}$

He should purchase it in 2 years for $\$81,000$

(b) with inflation considered

$\begin{align*} i_{f}&=0.10+0.05+0.10\times0.05\\ &=0.155\times100=15.5\% \end{align*}$

Now we can find future worth:

$\begin{align*} F&=68,000(F/P,15.5\%,2)\\ &=68,000\times1.334\\ &=\$90,712\\ \end{align*}$

A regional contractor should purchase HDD machine in 2 years for $\$82,280$

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