Answer to Question #68845 in Other Economics for Candace
I need assistance with this economic problems. I have no idea how to figure it out. I would really appreciated if I get could the step by step solution or how to do it step by step. Thanks.
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You have two alternatives for purchasing a machine to be used in a project that will run for 10 years. Which option would you choose if discount rate is 8%? .
Alternative 1 Initial Cost= $50,000
Alternative 2 Initial Cost= $65,000
Alternative 1 Useful Life= 7 years
Alternative 2 Useful Life= 11 years
Estimated salvage value at end of useful life:
Alternative 1= $10,000
Alternative 2= $5,000
Estimated market value, end of year 10:
Alternative 1= $20,000
Alternative 2= $15,000
Hint: If Alternative 1 is picked, at year 7, it should be purchased again since its lifetime of the first purchased item will be over. Then, initial cost will accrue again in year 7 and salvage value at year 10 is $20,000 rather than $10,000.
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