You are considering adding a new software title to those published by your highly successful software company. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product, "Battlin' Bobby." You had planned on using the unused capacity to start selling "BB" on the West coast in two years. You would eventually have had to purchase additional duplicating machines 10 years from today, but using the capacity for your new product will require moving this purchase up to 2 years from today. If the new machines will cost $115,000 and will be depreciated straight-line over a 5-year period to a zero salvage value, your marginal tax rate is 32 percent, and your cost of capital is 12 percent, what is the opportunity cost associated with using the unused capacity for the new product?
You are considering adding a new software title to those published by your highly successful software company. If you add the new product, it will use capacity on your disk duplicating machines that you had planned on using for your flagship product, "Battlin' Bobby." You had planned on using the unused capacity to start selling "BB" on the West coast in two years. You would eventually have had to purchase additional duplicating machines 10 years from today, but using the capacity for your new product will require moving this purchase up to 2 years from today. If the new machines will cost $115,000 and will be depreciated straight-line over a 5-year period to a zero salvage value, your marginal tax rate is 32 percent, and your cost of capital is 12 percent, what is the opportunity cost associated with using the unused capacity for the new product?
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.6P
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Transcribed Image Text:You are considering adding a new software title to those published by your highly successful software
company. If you add the new product, it will use capacity on your disk duplicating machines that you had
planned on using for your flagship product, "Battlin' Bobby." You had planned on using the unused capacity to
start selling "BB" on the West coast in two years. You would eventually have had to purchase additional
duplicating machines 10 years from today, but using the capacity for your new product will require moving
this purchase up to 2 years from today. If the new machines will cost $115,000 and will be depreciated
straight-line over a 5-year period to a zero salvage value, your marginal tax rate is 32 percent, and your cost of
capital is 12 percent, what is the opportunity cost associated with using the unused capacity for the new
product?
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