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Usfan company is interested in buying a computer with uncertain life' The following table shows its expected life and resale value: Expected Life Probability Resale

Usfan company is interested in buying a computer with uncertain life' The following table shows its expected life and resale value:

Expected Life Probability Resale value
3 years 20% $20,000
4 years 30% $10,000
5 years 50% $5,000

The computer will save the company $40,000 annually while it is running. Usfan will depreciate it fully on a straight-line basis in 3 years. The tax rate of Usfan is 30%, and the proper discount rate in this case is 12%. The cost of the computer is $90,000. Should Usfan buy it?

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