Answer:
The answer for (a)$442,890 for (b) $364,023.5
Explanation:
<em>From the question, the first set to take is to determine if the Mayor should purchase now or late when,</em>
<em>(a)When inflation is not considered</em>
<em>(b)When inflation is considered</em>
<em>(A) When inflation is considered</em>
<em>Future worth analysis (FWA) = 275, 000 (i +1)^5</em>
<em> =275,000 (1.10)^5</em>
<em>= $442,890</em>
<em>Thus, since FW > $375,000,</em>
<em>The cost of future is less, the Mayor should purchase later.</em>
<em>(B) When inflation is considered</em>
<em>Real rate = ( 1 + nominal/1 +inflation)^-1 = 1.1/1.04 -1 = 0.057 = 5.77</em>
<em>FW = 275,000 (1 +i)^5 = 275,000 (1.0577)^5</em>
<em>=$364,023.5</em>
<em>So FW< 375,000</em>
<em>Because the worth of buying or purchasing is less, the mayor should purchase now</em>
<em />
<em />
