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Suppose you are a farmer considering purchasing a new combine harvester. This combine lowers your harvesting costs by $50,000 per year (starting in year t
Suppose you are a farmer considering purchasing a new combine harvester. This combine lowers your harvesting costs by $50,000 per year (starting in year t = 1) but costs $8,000 per year to maintain (also starting in year t = 1). Your discount rate is 5%.
- If you can sell the combine for $150,000 at the end of the 10th year (t = 10). What is the most you would be willing to pay for this combine in time t = 0 if you have to pay for it up front? (2 points)
- Suppose you have the money to buy this combine, but you dont want to tie up all your capital in a large purchase. Whats the highest interest rate you would be willing borrow money from the bank? (No math actually needed.)
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