Microeconomics 6th Edition by Robert Hall, Shirley Kuiper, Marc Lieberman

Exercise 4

You are considering buying a new laser printer to use in your part-time desktop publishing business. The printer will cost $380,and you are certain it will generate additional net revenue of $100 per year for each of the next five years. At the end of the fifth year,it will be worthless. Answer the following questions:
a. What is the value of the printer if you could lend funds safely at an annual interest rate of 10 percent? Is the purchase of the printer justified?
b. Would your answer to part (a)change if the interest rate were 8 percent? Is the purchase justified in that case? Explain.
c. Would your answer to part (a)change if the printer cost $350? Is the purchase justified in that case?
d. Would your answer to part (a)change if the printer could be sold for $500 at the end of the fifth year? Is the purchase justified in that case? Explain.