Office Automation, Inc., must choose between two copiers, the XX40 or the RH45. The XX40 costs $2,200

Question:

Office Automation, Inc., must choose between two copiers, the XX40 or the RH45. The XX40 costs $2,200 and will last for three years. The copier will require a real after tax cost of $145 per year after all relevant expenses. The RH45 costs $2,800 and will last five years. The real after tax cost for the RH45 will be $245 per year. All cash flows occur at the end of the year. The inflation rate is expected to be 5 percent per year, and the nominal discount rate is 12 percent. Which copier should the company choose?

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...