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**Unformatted text preview: **ambiguous. Q3 Compute the net present expected value of the costs associated with using the old refrigerator over the four year time horizon. At t=0: costs are 140 (=1400*0.1) =>$140 At t=1: costs are 140/1.05=>$ 133.33 At t=2: costs are 140/1.05 2 =>$126.98 At t=3: costs are 140/1.05 3 =>$120.94 NPV=$521.25 (ii) Compute the net present value of the new refrigerator option over time horizon. At t=0: $700+$60=$760 At t=1: $60/1.05=$57.14 At t=2: $60/1.05 2 =$54.42 At t=3: $60/1.05 3 = $51.83 and subtract 500/1.03 3 (scrap)=$431.91 NPV=$491.48 (iii) Zoe would buy the refrigerator, assuming the standard DUM, because$491.48 < $521.25....

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- Spring '16
- Meredith Fowlie
- lower production costs, time horizon, profit maximization problem, $51.83, $54.42