Red valve Co of carnegie pennsylvania makes a control pinch

Red valve Co. of carnegie, pennsylvania , makes a control pinch valve that provides accurate, repeatable control of abrasive and corrosive slurries, outlasting gate, plug, ball, and even satellite coated valves. How many can the company afford to spend now on new equipment in spending $75000 four years from now. The company rate of return is 12% per year.

Solution

Time n = 4 years

Amount P = $75000

Discount rate R = 12%

Spending to be afforded now = P/(1+R)^4

Spending to be afforded now = 75000/(1+12%)^4

Spending to be afforded now = $47663.86

So, it is $47663.86 that can be spent now in lieu of spending $75000 after 4 years.