A forklift will last for only 2 more years. It costs $5,000 a year to maintain. For

Question:

A forklift will last for only 2 more years. It costs $5,000 a year to maintain. For $20,000 you can buy a new lift that can last for 10 years and should require maintenance costs of only $2,000 a year.

a. If the discount rate is 4% per year, should you replace the forklift?

b. What if the discount rate is 12% per year? Why does your answer change?

Discount Rate
Depending upon the context, the discount rate has two different definitions and usages. First, the discount rate refers to the interest rate charged to the commercial banks and other financial institutions for the loans they take from the Federal...