Capital Budgeting Present Value of Costs

Acme Corporation is considering purchasing personal computers. It can either buy from Apple or IBM. The Apple computer costs $1,200 and is expected to last for five years. Annual maintenance costs are $200 per year, paid at year’s end. The machines are expected to have no salvage value. The IBM computer costs $1,800 and is expected to last six years and has annual maintenance costs of $250. It is expected to have a salvage value of $300. The firm estimates its workload is such that it should either buy 400 Apple computers or 300 IBM computers. There is expected to be no technological progress. Acme uses straight-line depreciation. Both maintenance costs and depreciation are tax-deductible. Its tax rate is 40%. Its discount rate for this type of investment is 8%. Should the firm buy its computers from Apple or IBM?