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Solution

If the project were delayed, it’s cost next year will be:

$100 million +$8.5 million = $108.5 million next year

Compare this amount to the cost of replacing now- stated in dollars next year using the interest rate of 4%:

$100 million × ($1.04 next year/$1 now) = $104 million next year

The cost of a one year delay would be:

$108.5 million – $104 million = $4.5 million next year (future value)

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