Explain capital budgeting decision for purchase of computers

Reference no: EM1313951

Explain Capital Budgeting decision for purchase of computers based on present value of costs

Acme Corporation is considering purchasing personal computers. It can either buy from Apple or IBM. The Apple computer costs $1,200 and is expected to last for five years. Annual maintenance costs are $200 per year, paid at year's end. The machines are expected to have no salvage value. The IBM computer costs $1,800 and is expected to last six years and has annual maintenance costs of $250. It is expected to have a salvage value of $300. The firm estimates its workload is such that it should either buy 400 Apple computers or 300 IBM computers. There is expected to be no technological progress. Acme uses straight-line depreciation. Both maintenance costs and depreciation are tax-deductible. Its tax rate is 40%. Its discount rate for this type of investment is 8%. Should the firm buy its computers from Apple or IBM?

Reference no: EM1313951

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