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1. Wintertown Snow Removal Co. purchases snowplows for its residential snow clearing business. The purchase price of anadditional snowplow is currently $50 000 and it is expected to produce a stream of MRPs for 12 years. The interest rate is 4 percent and the present value of the stream of MRPs is $50 000.
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a. With this information, should the company purchase the additional snowplow?
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b. Suppose instead the interest rate were 6 percent. How will this affect the future stream of MRPs and the purchase decision?
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c. Suppose instead the interest rate were 2 percent. How will this affect the future stream of MRPs and the purchase decision?
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d. Suppose again that the interest rate is 4 percent. The company now learns of a new technology that is expected to reduce the price of home snowblowers by 50 percent. How will this affect the future stream of MRPs and the purchase decision?
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e. Suppose the interest rate is 4 percent and that new projections are announced for Wintertown that show a booming economy for the next 5ﾃ｢竄ｬ窶7 years. How will this
affect the future stream of MRPs and the purchase decision?
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