1. A government agency must decide whether to buy a computer which costs $80,000. The machine is likely to be obsolete at the end of three years, with no salvage value. During those years it will return annual net benefits (i.e., benefits over and above operating expenses) of $40,000 at the end of the first year; $40,000 at the end of the second year; and $20,000 at the end of the third year. At a 5% discount rate, what is the present value of the net benefits? Should the agency buy this computer? 2. What is the present value of the net benefits of the computer in #1 if the discount rate is 10%? 3. What is the present value of the net benefits of the computer in #1 if the discount rate is 15%?

1. A government agency must decide whether to buy a computer which costs $80,000. The machine is likely to be obsolete at the end of three years, with no salvage value. During those years it will return annual net benefits (i.e., benefits over and above operating expenses) of $40,000 at the end of the first year; $40,000 at the end of the second year; and $20,000 at the end of the third year. At a 5% discount rate, what is the present value of the net benefits? Should the agency buy this computer? 2. What is the present value of the net benefits of the computer in #1 if the discount rate is 10%? 3. What is the present value of the net benefits of the computer in #1 if the discount rate is 15%?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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