A regional infrastructure building and maintenance contractor must decide to buy a new compact horizontal directional drilling (HDD) machine now, or wait and buy it 2 years from now when a large pipeline contract will require the new equipment. The HDD machine will include an innovative pipeloader design and a maneuverable undercarriage system. The cost of the system is $65,800 if purchased now or an estimated $80,700 if purchased 2 years from now.
At i = 12% per year and f = 5% per year, determine if the contractor should buy now or later with inflation considered.
The contractor should buy the drilling machine for $.