ECON 282- Midterm Exam Guide - Comprehensive Notes for the exam ( 15 pages long!)
11 Oct 2017
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Nau is faced with the decision of which word processor to choose. It can buy the bang word processor, which costs ,000, and has an estimated annual, year-end maintenance cost of ,000. The bang word processor will be replaced at the end of year 4 and have no value at the time (maintenance cost for 4 years). Alternatively, nau could buy iou word processor to accomplish the same identical work. Iou word processor would need to be replaced after three years. Iou costs only , but annual, year-end maintenance costs will be per machine (for three years). Nau"s opportunity cost of funds is 14 percent. Because nau is a nonprofit institution it does not pay taxes. There is no salvage value for either machine. It is anticipated that whichever manufacturer is chosen now will be the supplier of future machines. Since revenue is the same we will compare the costs of the two machines:
