Question
A project requires use of spare computer capacity. If the project is not terminated, the company will need to buy an additional disk at the
A project requires use of spare computer capacity. If the project is not terminated, the company will need to buy an additional disk at the end of year 2. If it is terminated, the disk will not be required until the end of year 4. Disks cost $10,000 and last 5 years. The opportunity cost of capital is 10% (an annual rate compounded annually). a) What is the present value of the cost of this extra usage if the project continues indefinitely? b) What if the project is terminated at the end of year 2? My comment: How do you solve this, do you use a perpetuity or annuity equation, what are the cash flows? thanks
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