Question

2) a. Martha's manufacturing is being offered a new machine to stream-line her assembly line. The machine has an expected life of 9 years. The machine could sav e Martha $15,000 annually. Given a 4.5% annual interest rate, what would be reasonable for Martha to be willing to pay for the machine? b. In 1992, Juan began depositing $3000 into his Individual Retirement Account (IRA) annually. If Juan plans to retire after the year 2020, how much will he have in his IRA given an 7.5% interest rate compounded continuously?

Answer 1

Solution:

a)

Let p be the amount what the firm is willing to pay, For the company to be in profit

P015000-9

105 5 1 4.5 p1150009

p ( 1 .045)9 < 15000 * 9

1.486p < 150009

150009 1.486

$90847.91

$\text{b)}$

Amount after 28 years with rate 7.5 will be

A = 3000e0·075* 28-$24498.5