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Usfan Company is interested in purchasing a computer with uncertain life. The following table describes its expected life and resale value:

Expected life

Probability

Resale value

3 years

20%

$20,000

4 years

30%

$10,000

5 years

50%

$5,000

The computer will save company $40,000 annually while it is running. Usfan will depreciate it fully on the straight-line basis in three years. The tax rate of Usfan is 30%, and proper discount rate in this case is 12%. The cost of computer is $90,000. Should Usfan buy it?

Statistics and Probability, Statistics

  • Category:- Statistics and Probability
  • Reference No.:- M918207

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