Q2) M Engineering, Freshman wants to purchase a PC for use during the 41/2 years
ID: 1095050 • Letter: Q
Question
Q2) M Engineering, Freshman wants to purchase a PC for use during the 41/2 years that she plans to study engineering at Texas Tech (Now that's good planning!). After looking around a bit, she finds that a well-equipped PC with software can be purchased for $2,170 and that it should have a market value of at least $1,700 if she wants to sell it when she graduates after 41/2 years. Assume that maintenance and supplies will cost $100 each six months. Use an interest rate of 12% with monthly compounding, and determine the present cost of owning and operating the computer.Explanation / Answer
Interest (r) = 12% / 2 = 6%
N = 4.5 years * 2 = 9
NPV = -2,170 - 100 [(1+0.06)^9 - 1] / [0.06 * (1+0.06)^9] + 1700 / (1+0.06)^9
NPV = -2,170 - 680.20 + 1006.23
NPV = 1843.97
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