Your firm is considering purchasing some computers. Each computer costs $2,600, and each will add to your net revenue by known amounts. Because you plan to use the computers for different purposes, you have ranked those purposes in descending order of annual additional revenue as follows:
Net Additional Revenue
Computer per Year
1 ........... $3,000
2 ........... $2,000
3 ........... $1,000
4 ........... $ 500
a. Assume that each computer has a useful life of three years and no value thereafter. If the annual interest rate is 10 percent per year, how many computers should you purchase?
b. If, before you purchased the computers, the interest rate dropped to 5 percent per year, how many computers would you purchase?