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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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