Discussion
Deferring the purchase of a challenger by two years, with prices rising 6 per cent a year, raises its first cost of 200 000 to about
Answer: D
Correct answer: 224 700
\[ 200{,}000 \times 1.06^2 = 200{,}000 \times 1.1236 = 224{,}720. \] Note this is compounding rather than simple addition: two years at six per cent is 12.36 per cent, not 12. Over longer deferrals the difference grows and the rising challenger price becomes a real argument against waiting.
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