You are the manager of a pharmaceutical company and are
You are the manager of a pharmaceutical company and are considering what type of laptop computers to buy for your salespeople to take with them on their calls.
• You can buy fairly inexpensive (and less powerful) older machines for about $2,000 each. These machines will be obsolete in three years and are expected to have an annual maintenance cost of $150.
• You can buy newer and more powerful laptops for about $4,000 each. These machines will last five years and are expected to have an annual maintenance cost of $50.
If your cost of capital is 12%, which option would you pick and why?
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