Question

A medium sized consulting engineering firm is trying to decide whether it should remodel its office now or wait and do it one year from now. If the firm does it now, the cost will be $38,000. The interest rate is 10% per year. a) What would the cost have to be one year from now to render the decision indifferent

Answer 1

next year total cost = $41,800 is the cost to render the decision indifferent.

Step-by-step explanation:

given data

cost = $38,000

interest rate = 10% per year

time period = 1 year

solution

we get here total cost of remodelling next year that is here

total cost = P + (PNR) ÷ 100 ............1

here P is present cost and N term and R interest rate.

and we take here interest for 1 year first that is

interest = PNR ÷ 100 = 38,000 x 1 x 10 ÷ 100 = $3,800

so as that next year cost will be

next year total cost = 38,000 + 3,800

next year total cost = $41,800 is the cost to render the decision indifferent.