(a) For equipment that has a first cost of RM 10,000 and the estimated operating costs...

 

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(a) For equipment that has a first cost of RM 10,000 and the estimated operating costs and year-end salvage values shown in Table Q3 below, determine the economic service life at i=10% per year. Table Q3 Year Operating Cost, Salvage RM per Year Value, RM 1 -1,000 7,000 2 -1,200 5,000 3 -1,300 4,500 4 -2,000 3,000 -3,000 2,000 (10 marks) (b) (i) State the difference between today's RM and constant-value RM? (3 marks) Determine the annual inflation rate is implied from an inflation-adjusted interest rate of 10% per year, when the real interest rate is 4% per year? (4 marks) (iii) Assume that you want to retire 30 years from now with an amount of money that will have the same value (same purchasing power) as RM 1.5 million today. If you estimate the inflation rate will be 4% per year, determine the future (then- current) RM will you need? (4 marks) (iv) If the inflation rate is 7% per year, calculate how many years will it take for the cost of something to double when prices increase at exactly the same rate as inflation? (4 marks) (a) For equipment that has a first cost of RM 10,000 and the estimated operating costs and year-end salvage values shown in Table Q3 below, determine the economic service life at i=10% per year. Table Q3 Year Operating Cost, Salvage RM per Year Value, RM 1 -1,000 7,000 2 -1,200 5,000 3 -1,300 4,500 4 -2,000 3,000 -3,000 2,000 (10 marks) (b) (i) State the difference between today's RM and constant-value RM? (3 marks) Determine the annual inflation rate is implied from an inflation-adjusted interest rate of 10% per year, when the real interest rate is 4% per year? (4 marks) (iii) Assume that you want to retire 30 years from now with an amount of money that will have the same value (same purchasing power) as RM 1.5 million today. If you estimate the inflation rate will be 4% per year, determine the future (then- current) RM will you need? (4 marks) (iv) If the inflation rate is 7% per year, calculate how many years will it take for the cost of something to double when prices increase at exactly the same rate as inflation? (4 marks)