a. Han can purchase a new tractor for $100,000. It will cost $10,000 per year to operate and after 3 years she can sell it for $50,000. The tractor will raise the value of her output of corn by $40,000. If she must pay 5% interest on the bank loan to purchase the tractor, what should she do? (use a calculator)
b. What if the FED raises interest rates so that Han must pay 10% on her bank loan?
c. Explain the effect of interest rates on Han’s decision in your own words.