Unfortunately, Obsolete Technologies business is shrinking as the company dithers and dawdles. Its chief financial...
80.2K
Verified Solution
Link Copied!
Question
Finance
Unfortunately, Obsolete Technologies business is shrinking as the company dithers and dawdles. Its chief financial officer realizes that the savings from installing the new computer will likewise shrink by $4,000 per year, from a present value of $70,000 now, to $66,000 next year, then to $62,000, and so on. Redo Table 8.2with this new information. When should Obsolete buy the new computer?
Year of Purchase
Cost of Computer PV Savings
NPV at Year of Purchase ( r = 10%) NPV Today 0 $50 $70 $20 $20.0 1 45 70 25 22.7 2 40 70 30 24.8 3 36 70 34 25.5 optimal purchase date 4 33 70 37 25.3 5 31 70 39 24.2 TABLE
TABLE 8.2 Obsolete Technologies: The gain from purchase of a computer is rising, but the NPV today is highest if the computer is purchased in year 3 (dollar values in thousands) Year of Purchase Cost of Computer $50 45 40 36 Pv Savings $70 70 70 70 70 70 NPV at Year of Purchase (r-10%) $20 25 30 34 37 39 NPV Today $20.0 22.7 24.8 25.5 25.3 24.2 2 3 4 optimal purchase date 31
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Zin AI - Your personal assistant for all your inquiries!
Unfortunately, Obsolete Technologies business is shrinking as the company dithers and dawdles. Its chief financial officer realizes that the savings from installing the new computer will likewise shrink by $4,000 per year, from a present value of $70,000 now, to $66,000 next year, then to $62,000, and so on. Redo Table 8.2with this new information. When should Obsolete buy the new computer?