Would sell the fixed asset at today

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Two years ago, when the market rate was 5%, your company purchased a fixed asset for $50,000. Starting a year after the purchase, fixed asset started to bring in $20,000 annual revenue with annual costs of $8,000. The expected lifetime of the asset is 8 years. You obtained your second cash flow today and due to the changes in the market, you will need to update your revenue, costs, as well as the interest rate. Going forward, annual revenue will drop by 40% and annual costs will go up by 20%.

Problem a) Assuming that the market rate is still 5% for now and the coming 6 years, if you could sell the asset today at $13,000, should you?

Problem b) Assuming that market rate is now 1% and is expected to stay at 1% for the coming 6 years, then, would you sell the fixed asset at $13,000 today?

Reference no: EM132775880

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