economics question benefits and costs 2

economics question benefits and costs 2

1.  The manager of a movie production company is thinking of investing in new graphics computers for a price of $325,000.  The computers are expected to have a useful life of 3 years.  The machine is expected to save the firm $200,000 in the first year, $180,000 in the second year, and $60,000 in the third year.  At the end of 3 years, a junk dealer would be willing to purchase the machine for $20,000.  Alternatively, the manager could skip the machine, and invest the $325,000 at a guaranteed interest rate of 5%.  Which choice is more profitable for the manager, buying the computers or investing the money at 5%?

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