A company can automate its payroll department by purchasing a computer. The computer costs $25,000 now, but it may cost only $20,000 next year. The company expects to save $6500 a year during its useful life of 5 years. The discount rate is 12%, and the risk-free rate is 6%. The company uses straight-line depreciation and its tax rate is 30%. Should the company install the computer this year, or next year?
A company can automate its payroll department by purchasing a computer. The computer costs $25,000 now, but it may cost only $20,000 next year. The company expects to save $6500 a year during its useful life of 5 years. The discount rate is 12%, and the risk-free rate is 6%. The company uses straight-line depreciation and its tax rate is 30%. Should the company install the computer this year, or next year?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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- A company can automate its payroll department by purchasing a computer. The computer costs $25,000 now, but it may cost only $20,000 next year. The company expects to save $6500 a year during its useful life of 5 years. The discount rate is 12%, and the risk-free rate is 6%. The company uses straight-line
depreciation and its tax rate is 30%. Should the company install the computer this year, or next year?
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