You are a photgrapher and you own a small cinematography business. You are considering buying a new camera. The camera will cost $3800, and you expect it to produce additional revenue of $1000 over each of the next five years. At the end of the fifth year, it will wear out and will be worthless.

1. If your opportunity cost of funds is 10% annually, is the purchase of the camera justified?
2. Would your answer to part (a) change if your opportunity cost of funds were 8%? Is the purchase justified in that case? Explain.
3. . What is the economic rational uderlying your answers to part a and b?

Answer rating: 100% (QA)

Part a To decide whether the purchase of the camera is justified lets perform a net present value NP... View the full answer