4u6 = your comp any couls Purchase equipment Fv for book Today Itwould incressa Profits by 150k/y Paidatend of each year for T»5 yrs PV= (1+r) T
Fv
​
, biscount nate cost of captal =5% Risk / inconirniance 2 * ln flation 3% (1−1,) 1
=1.1 1.12
150,000
​
=136,363 (1−1,2
9−1,3
​
=1.21 1.1) 2
150,000
​
=123,966
=1.33
​
(1−1,4=1.46 (1−1,5=1.61
(1.1) 6
=177
​
(1.1) 3
150,0.0
​
=112,781
(1−1,4
150,0.0
​
=102,734
​
(1−1) 5
150,000
​
=93,167 9. Suppose your company can purchase new equipment for $870,000. Your company's profits would increase by $236,000 per year for 5 years, paid at the end of each year. The equipment becomes worthless at the conclusion of the 5 th year, no salvage value. You assume an inflation rate of 2%, the risk of this equipment not leading to this profit is 2%, and your cost of capital would be 4% to purchase this equipment. Should you purchase this equipment? Show your work. Carry answer to the nearest dollar. Hints: (1.08) 2
=1.17(1.08) 3
=1.26 (1.08) 4
=1.36 (1.08) 5
=1.47,5/9(1.08) 6
=1.59