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There are two parts to this question, please be sure to respond to both part a and part b of this question. a. The Good
There are two parts to this question, please be sure to respond to both part a and part b of this question. a. The Good Harmony Tea Corporation plans to set aside $60,000 per year beginning one year from now for replacing equipment five years from now. That is, they plan to set aside $60,000 at t=1,2,3,4,5 years. What will be the buying power with respect to today's dollars of the amount accumulated after five years, if the investment grows by 10% per year, and inflation is expected to average 4% per year over the next 5 years? b. A company can buy a used Lear jet now or wait for a new model that will be available 3 years from now. Either of the planes is acceptable to the company. The cost of the new model plane will be $1.5 million, payable when the plane is delivered in 3 years. The company expects a real return on its investments 15% per year, and the inflation rate over the next 3 years is projected to average 3% per year. What is the most the company should pay for the used Lear jet available today
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