Question
You are deciding between the purchase of two computer systems that perform the same function. The computer will be replaced at the end of its
You are deciding between the purchase of two computer systems that perform the same function. The computer will be replaced at the end of its useful life. Computer 1 lasts three years and costs $30,000. After-tax cash flows are expected to be $15,000, $18,000, and $20,000 in years 1,2, and 3, respectively. Computer 2 lasts four years and costs $20,000. After-tax cash flows are estimated at $12,000 in years 1 and 2, $9,000 in year 3, and $10,000 in year 4. Both computer systems will be worthless at the end of their useful lives. If your discount rate is 9%, which is the better buy? Show you arrived at your decision.
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