A manager of Olympic Mutual Funds is contemplating acquiring servers to operate its Web site. The servers

Question:

A manager of Olympic Mutual Funds is contemplating acquiring servers to operate its Web site. The servers will cost $660,000 cash and will have zero terminal salvage value. The useful life will be three years. Annual savings from operations will be $260,000 and the required rate of return is 12 percent. Ignore the effect of income taxes.

1. Compute the NPV. Should Olympic acquire computers? Explain.

2. Suppose the required rate of return is 8 percent instead of 12 percent. Should Olympic acquire the computers? Show computations.

Mutual Funds
Mutual funds are like a pool of funds gathered by different small investors that have simalar investment perspective about returns on their investments. These funds are managed by professional investment managers who act smartly on behalf of the... Salvage Value
Salvage value is the estimated book value of an asset after depreciation is complete, based on what a company expects to receive in exchange for the asset at the end of its useful life. As such, an asset’s estimated salvage value is an important...

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