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You can purchase an optical scanner today for $400. The scanner provides benefits worth $60 a year. The expected life of the scanner is 10 years. Scanners are expected to decrease in price by 20% per year. Suppose the discount rate is 10%. Should you purchase the scanner today or wait to purchase

Answer :

Answer:

The scanner should be purchased today.

Explanation:

Note: See the attached file for the calculations.

The net present value (NPV) of purchase is positive at $168.28,  while the present value of waiting to buy it in 10 years time is negative at $38.88.

This implies that a benefit of $168.28 would be realized if the asset is purchased today, while cost of $38.88 will be incurred if we wait.

Based on the benefit of $168.28 as against the cost of $28.88, the scanner should be purchased today.

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