The Shut-Kan-Do Sheet Metal Company is trying to decide whether it should pay now or pay later for upgrading its production facilities. If the company selected plan A for Action, the necessary equipment would be purchased now for $20,000. However, if the company selected plan I for Inaction, the equipment purchased would be deferred for 3 years when the cost would be $34,000. the minimum attractive rate of return is 18% per year and the inflation rate is expected to be 12% per year.
a) Find the real interest rate for these plans.
b) Determine whether the company should purchase now or purchase later when inflation is not considered, and when inflation is taken into account.