A pretzel manufacturer is considering buying another pretzel-making machine that costs $100 000. The machine will depreciate by 8 per cent per year. It will generate real profits equal to $18000 next year, $18 000(1 – 0.08) two years from now (that is, the same real profits, but adjusted for depreciation), $18 000(1 – 0.08)2 three years from now, and so on. Determine whether the manufacturer should buy the machine if the real interest rate is assumed to remain constant at
a. 5 per cent
b. 10 per cent
c. 15 per cent
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