Market Top Investors, Inc., is considering the purchase of a $385,000 computer with an economic life of

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Market Top Investors, Inc., is considering the purchase of a $385,000 computer with an economic life of five years. The computer will be fully depreciated over five years using the straight-line method, at which time it will be worth $30,000. The computer will replace two office employees whose combined annual salaries are $90,000. The machine also will immediately lower the firm’s required net working capital by $70,000. This amount of net working capital will need to be replaced once the machine is sold. The corporate tax rate is 22 percent. Is it worthwhile to buy the computer if the appropriate discount rate is 9 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...
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Corporate Finance

ISBN: 978-1259918940

12th edition

Authors: Stephen Ross, Randolph Westerfield, Jeffrey Jaffe, Bradford Jordan

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