Magana, a private limited company in tourism industry, in order to improve customer services and provide management with timely and quality information, the company is contemplating purchasing 6 microcomputers at sh 112000 each. Installation cost for all of them will amount sh 60,000.It is estimated that once installed the company will increase pre-tax operating benefit from sh 11, 769,000 to sh 11,995,000 annually. Computers are expected to last for 8 years after which this will be obsolete with no residue value. The operations manager argues the company needs will have to grow the computers in only 5 years. The computers will be salvaged for 32,000 each after 5 years 30% tax bracket. The cost of capital is 16% and straight line method of depreciation is used to depreciate all fixed assets.

Required.

a] Suppose the probability useful life of these computers is determined as follows;

Probability useful life

0.3 5 years

0.5 8 years

0.2 10 years

Determine whether Magana should purchase the computers.