You are a social media business with excess capacity of 50% on your computer server; if you stay with your existing business, you will not run out of capacity until the end of year 7. You are considering introducing a new service that will use some of the excess capacity, but cause you to run out of capacity at the end of year 3. If the cost of adding a new server is $ 60 million (you can assume no inflation), what is the opportunity cost of using the excess capacity? (You have a cost of capital of 12%, a marginal tax rate of 35% and you can assume that you can expense the cost of the server.) Hint: opportunity cost is money lost by using the excess capacity earlier relative to using it later). а. 10 12

You are a social media business with excess capacity of 50% on your computer server; if you stay with your existing business, you will not run out of capacity until the end of year 7. You are considering introducing a new service that will use some of the excess capacity, but cause you to run out of capacity at the end of year 3. If the cost of adding a new server is $ 60 million (you can assume no inflation), what is the opportunity cost of using the excess capacity? (You have a cost of capital of 12%, a marginal tax rate of 35% and you can assume that you can expense the cost of the server.) Hint: opportunity cost is money lost by using the excess capacity earlier relative to using it later). а. 10 12

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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