Quiz3_Spring08

Quiz3_Spring08 - any assumptions you make. ) fl t s S...

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CHEE 5369/6369 Quiz # 3 (Closed book) Tuesday February 5, 2008 0 \ 1 l O A reactor can be purchased for $ 60,000 today. The company intends to use the reactor for 10 years, and then sell it at a salvage value which equals~ of the equivalent future worth of the purchase price at an interest rate of 8%. The company also intends to purchase a similar new reactor but double the size after 10 years. The salvage value from the first reactor will be used as part of the purchase price of the new reactor then. For this type of reactor, it is expected that the cost to purchase will increase exactly by the inflation rate over the next ten years. The inflation rate is estimated to be 2 % per year for the next three years and 5 % per year thereafter. ~How much will the salvage value be after ten years? M How much more money will the company have to invest in order to purchase I / the new reactor after ten years? ( C ) If the applicable cost index is at 1203 now, what will it be 10 years from now? ~- --- - -~ State clearly
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