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?

Financial Accounting Intro Concepts Meth/Uses

14th Edition

ISBN:9781285595047

Author:Weil

Publisher:Weil

ChapterA: Appendix - Time Value Of Cash Flows: Compound Interest Concepts And Applications

Section: Chapter Questions

Problem 30P

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