You are deciding between the purchase of two computer systems that perform the same function. The computer
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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 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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