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A firm is considering purchasing a massive3D printer to replace the existing one that cost the company $1 million fiveyears ago. The new printer will cost $1.8 million, with an expected salvagevalue of $150,000 in 3 years. The old printer can be sold for of $200,000 todayand or sold for $10,000 in 3 years. What is the initial investment?$1,000,000$1,450,000$1,600,000$1,800,000$2,800,000

Question

A firm is considering purchasing a massive3D printer to replace the existing one that cost the company 1millionfiveyearsago.Thenewprinterwillcost1 million fiveyears ago. The new printer will cost 1.8 million, with an expected salvagevalue of 150,000in3years.Theoldprintercanbesoldforof150,000 in 3 years. The old printer can be sold for of 200,000 todayand or sold for 10,000in3years.Whatistheinitialinvestment?10,000 in 3 years. What is the initial investment?1,000,0001,450,0001,450,0001,600,0001,800,0001,800,0002,800,000

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Solution

The initial investment can be calculated by adding the cost of the new printer and the opportunity cost of selling the old printer today.

The cost of the new printer is $1.8 million.

The opportunity cost of selling the old printer today is the price it could be sold for today, which is $200,000.

So, the initial investment is 1.8million(costofnewprinter)+1.8 million (cost of new printer) + 200,000 (opportunity cost of selling old printer today) = $2 million.

Therefore, the initial investment is $2,000,000.

This problem has been solved

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