Projects with Different Lives: Your Firm Is Deciding Whether to Purchase

question 9

Multiple Choice

Projects with different lives: Your firm is deciding whether to purchase a high-quality printer for your office or one of lesser quality. The high-quality printer costs $40,000 and should last four years. The lesser quality printer costs $30,000 and should last three years. If the cost of capital for the firm is 13 percent, then what is the equivalent annual cost for the best choice for the firm? Round to the nearest dollar.

• A) $10,000, either printer
• B) $10,000, lesser quality printer
• C) $12,706, lesser quality printer
• D) $13,448, high-quality printer

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Definitions:

Depreciation Expense

The allocation of the cost of a tangible asset over its useful life, reflecting wear and tear, obsolescence, or other declines in value.

Depreciable Rate

The rate at which an asset loses its value over time for accounting and tax purposes, determining its annual depreciation.

MACRS Rates

MACRS Rates refer to the depreciation rates established under the Modified Accelerated Cost Recovery System, allowing for faster depreciation of assets for tax purposes.

Property

Assets owned by an individual or business, which can include physical items like real estate and equipment, or intangible items like intellectual property.