17. Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and

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17 Gold Star Industries Is Contemplating A Purchase Of Computers The Firm Has Narrowed Its Choices To The Sal 5000 And 1 (34.28 KiB) Viewed 64 times

17. Gold Star Industries is contemplating a purchase of computers. The firm has narrowed its choices to the SAL 5000 and the DET 1000. Gold Star would need 10 SALs, where each SAL costs $3,750 and requires S500 of maintenance each year. At the end of the computer's eight- year life, Gold Star expects to sell each one for $500. Alternatively, Gold Star could buy eight DETs. Each DET costs $5,250 and requires $700 of maintenance every year. Each DET lasts for six years and has a resale value of $600 at the end of its economic life. Gold Star will contime to purchase the model that it chooses today into perpetuity. Ignore tax effects and assume that the maintenance costs occur at year-end. Which model should Gold Star buy if the appropriate discount rate is 11 percent? (8 points)