Question

Timken roller bearing is a manufacturer of seamless tubes for drill bit collars. Company is planning to add larger capacity robotic arms to one of its assembly lines 3 years from now. If it is done now, the cost of the equipment is $2.4 million. Assume that the company's real MARR is 15% per year and the inflation rate is 2.8% per year. Determine the equivalent amount the company can spend 3 years from now in then-current dollars.

a. $4,943,200.
b. $2,943,200.
c. $3,943,200.
d. unknown.

Answer 1

the equivalent amount the company can spend 3 years from now in then-current dollars is $3,943,200

Step-by-step explanation:

The computation of the equivalent amount the company can spend 3 years from now in then-current dollars is shown below:

= $2,400,000 × (1 + 17.8%)^3

= $2,400,000 × 1.63942

= $3,943,200

Hence, the equivalent amount the company can spend 3 years from now in then-current dollars is $3,943,200