Nata, Inc., is considering the purchase of a $540,000 computer with an economic life of five years.

Question:

Nata, Inc., is considering the purchase of a $540,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method. The market value of the computer will be $40,000 in five years. The computer will replace four office employees whose combined annual salaries are $125,000. The machine will also immediately lower the firm’s required net working capital by $60,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 34 percent. Is it worthwhile to buy the computer if the appropriate is 10 percent?
Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...