Question
The Computer Lab needs to buy new computers. Student leaders have narrowed the choices to the SAL 5000 and DET 1000. It would need 10
The Computer Lab needs to buy new computers. Student leaders have narrowed the choices to the SAL 5000 and DET 1000. It would need 10 SALs. Each SAL costs $5,000 and requires $1,000 of maintenance each year. At the end of the computers eight year life, the Lab expects to be able to sell each one for $500. On the other hand, the Lab could buy eight DETs. DETs cost $7,000 each and each machine requires $700 of maintenance every year. They last for six years and have no resale value. Whichever model the Lab chooses, it will buy that model forever. Ignore tax effects, and assume that maintenance costs occur at year-end. Which model should the Lab buy if the cost of capital is 10 percent?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started