Question
Famed gamer Tyler Ninja' Blevins is considering whether to replace his aging game console or to spend money on updating it. The replacement console would
Famed gamer Tyler Ninja' Blevins is considering whether to replace his aging game console or to spend money on updating it. The replacement console would cost $7,000 now and would need software updates of $900 to be paid at the end of every year for 6 years. At the end of 6 years, the replacement console can be salvaged for $3,100. 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 | $2,100 |
1 | $1,500 | $1,500 |
(The existing console can be sold for $2,100 now. If it is sold in 1 year, the price will be $1,500. If the existing console is used between t = 0 and t = 1, a software update costing $1,500 must be paid at t=1.)
Tyler Blevins faces an opportunity cost of capital of 18%.
Expressed in Year 1 dollars, operating the old game console from t = 0 to t =1 would cost Tyler Blevins _______ more than operating the new game console from t = 0 to t = 1 .
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