Galvanized Products is considering the purchase of a new computer system for the
ID: 2777977 • Letter: G
Question
Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow 1/4th of the purchase price from a bank at 15% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $5,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $25,000 per year to maintain the system but will save $50,000 per year through increased efficiencies. Galvanized Products uses a MARR of 18%/year to evaluate investments.
What is the future worth of this investment?
Explanation / Answer
fv factor Cashflows Total Future Year at 15% Cost of system Solvage Net Savings Cashflows Value 0 2.01136 -75000 -75000 -150852 1 1.74901 -10949.42 25000 14050.58 24574.55 2 1.52088 -10949.42 25000 14050.58 21369.18 3 1.32250 -10949.42 25000 14050.58 18581.89 4 1.15000 25000 25000 28750 5 1.00000 5000 25000 30000 30000 Total -107848.26 5000 125000 22151.74 -27576.2 loan amount @1/4th of purchase price = 25,000 annual EMI = 25000 x r(r+1)^3/{(r+1)^3-1} Or, EMI = 25,000 x 0.15(1.15)^3/(1.15^3-1) = 10,949.42 Future Value(fv) = (1+r)^(time remaining) =(1+15/100)^(5-0) for year zero =2.01136 Future Value(fv) = (1+r)^(time remaining) =(1+15/100)^(5-1) for year one =1.74901 Answer: Future value after 5 year = $ -27,576.20
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.