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Interest rate for financing the equipment

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Reference no: EM132331048

Most businesses replace their computers every two to three years. Assume that a computer costs $2,000 and that it fully depreciates in 3 years, at which point it has no resale value and is thrown away.

Instructions: Enter your responses rounded to the nearest dollar.

a. If the interest rate for financing the equipment is 10 percent, what is the minimum annual cash flow that a computer must generate to be worth the purchase?

The minimum annual cash flow must be at least $ .

b. Suppose the computer did not fully depreciate but still had a $250 value at the time it was replaced. What is the minimum annual cash flow that a computer must generate to be worth the purchase?

The minimum annual cash flow must be at least $.

Reference no: EM132331048

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