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

Exercise 6

Your inventory manager has asked you to approve the purchase of a new inventory control software package. The software will cost $200,000 and will last for four years,after which it will become obsolete. If you do not approve this purchase,your company will have to hire two new inventory clerks,paying each $30,000 per year. Answer the following questions:
a. Should you approve the purchase of the inventory control software if the relevant annual interest rate is 7 percent?
b. Would your answer to part (a)change if the annual interest rate is 9 percent? Explain.
c. Would your answer to part (a)change if the software cost $220,000? Explain.
d. Would your answer to part (a)change if the software would not become obsolete until the last day of its sixth year?