BIG (Burlington Industrial Group) requires computers to run its operations. The managers have narrowed the choices to the NYC…

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BIG (Burlington Industrial Group) requires computers to run its operations. The managers

have narrowed the choices to the NYC and the BOS. NYC lasts 9 years, costs $12 million and requires $1.55 million

of maintenance each year. BOS lasts 7 years, costs $8.75 million, and requires $1.75 million of maintenance each

year. Whichever model BIG chooses, it will buy that model forever. Maintenance for each computer is paid at the end

of the year (including in the last year of operations). The appropriate discount rate is 9%. Ignore taxes and

technological change. Which model is cheaper to use? BIG (Burlington Industrial Group) requires computers to run its operations. The managers

have narrowed the choices to the NYC and the BOS. NYC lasts 9 years, costs $12 million and requires $1.55 million

of maintenance each year. BOS lasts 7 years, costs $8.75 million, and requires $1.75 million of maintenance each

year. Whichever model BIG chooses, it will buy that model forever. Maintenance for each computer is paid at the end

of the year (including in the last year of operations). The appropriate discount rate is 9%. Ignore taxes and

technological change. Which model is cheaper to use? BIG (Burlington Industrial Group) requires computers to run its operations. The managers

have narrowed the choices to the NYC and the BOS. NYC lasts 9 years, costs $12 million and requires $1.55 million

of maintenance each year. BOS lasts 7 years, costs $8.75 million, and requires $1.75 million of maintenance each

year. Whichever model BIG chooses, it will buy that model forever. Maintenance for each computer is paid at the end

of the year (including in the last year of operations). The appropriate discount rate is 9%. Ignore taxes and

technological change. Which model is cheaper to use?

Expert Answer:

Answer rating: 100% (QA)

To determine which model is cheaper to use we can calculate the total present

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