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Ana is considering whether to replace her old game console or to spend money on updating it. The replacement console would cost $7,500 now and
Ana is considering whether to replace her old game console or to spend money on updating it. The replacement console would cost $7,500 now and would need software updates of $700 to be paid at the end of every year for 7 years. At the end of 7 years, the replacement console can be salvaged for $2,100. The existing game console needs increasing amounts of software updates each year, and its salvage value is falling, as shown below. Year Maintenance Salvage Now $0 $2,300 1 $1,700 $1,100 (The existing console can be sold for $2,300 now. If it is sold in 1 year, the price will be $1,100. If the existing console is used between t= 0 and t = 1, a software update costing $1,700 must be paid at t=1.) Ana faces an opportunity cost of capital of 19%. Expressed in Year 1 dollars, operating old game console = 0 to t=1 would cost Ana more than operating the new game console from t= 0 to t=1. multiple choice $781 $625 $1,366 $305 $1,163 Ana is considering whether to replace her old game console or to spend money on updating it. The replacement console would cost $7,500 now and would need software updates of $700 to be paid at the end of every year for 7 years. At the end of 7 years, the replacement console can be salvaged for $2,100. The existing game console needs increasing amounts of software updates each year, and its salvage value is falling, as shown below. Year Maintenance Salvage Now $0 $2,300 1 $1,700 $1,100 (The existing console can be sold for $2,300 now. If it is sold in 1 year, the price will be $1,100. If the existing console is used between t= 0 and t = 1, a software update costing $1,700 must be paid at t=1.) Ana faces an opportunity cost of capital of 19%. Expressed in Year 1 dollars, operating old game console = 0 to t=1 would cost Ana more than operating the new game console from t= 0 to t=1. multiple choice $781 $625 $1,366 $305 $1,163
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