Inflation

Abbott Mining Systems wants to determine whether it should “buy” now or “buy” later for upgrading a piece of equipment used in deep mining operations in one of its international operations. If the company selects plan A, the equipment will be purchased now for $200,000. However, if the company selects plan I, the purchase will be deferred for 3 years when the cost is expected to rise rapidly to $340,000. Abbott is ambitious; it expects a real MARR of 12% per year. The inflation rate in the country has averaged 6.75% per year. From only an economic perspective, determine whether the company should purchase now or later

(a) when inflation is not considered and (b) when inflation is considered.

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