Office Automation, Inc., must choose between two copiers, the XX40 or the RH45. The XX40 costs $1,499

Question:

Office Automation, Inc., must choose between two copiers, the XX40 or the RH45. The XX40 costs $1,499 and will last for three years. The copier will require a real aftertax cost of $120 per year after all relevant expenses. The RH45 costs $2,399 and will last five years. The real aftertax cost for the RH45 will be $95 per year. All cash flows occur at the end of the year. The inflation rate is expected to be 3 percent per year, and the nominal discount rate is 9 percent. Which copier should the company choose?

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...