The University Resume Service has just invested $8,000 in a new desktop publishing system. From past experience,

Question:

The University Resume Service has just invested $8,000 in a new desktop publishing system. From past experience, the owner of the company estimates its after-tax cash returns as
An = $8,000 - $4,000(1 + 0.15)n-1
Sn = $6,000(1 - 0.3)n
where An stands for the net after-tax cash flows from operation of the system during period n and Sn stands for the after-tax at the end of period n.
(a) If the company's is 12%, compute the economic service life of the system.
(b) Explain how the economic service life varies with the interest rate.
Table P14.10

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