Galvanized Products is considering purchasing 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 one-fourth 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 $4,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $27,000 per year to maintain the system but will save $57,000 per year through increased efficiencies. Galvanized Products uses a MARR of 14%/year to evaluate investments. a. What is the external rate of return of this investment? ERR = % Do all calculations te 5 decimal nlaces and

Galvanized Products is considering purchasing 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 one-fourth 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 $4,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $27,000 per year to maintain the system but will save $57,000 per year through increased efficiencies. Galvanized Products uses a MARR of 14%/year to evaluate investments. a. What is the external rate of return of this investment? ERR = % Do all calculations te 5 decimal nlaces and

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter9: Capital Budgeting And Cash Flow Analysis

Section: Chapter Questions

Problem 10P

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Galvanized Products is considering purchasing 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 one-fourth of the purchase price from a bank at 16 percent 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 $3,000 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $20,000 per year to maintain the system but will save $50,000 per year through increased efficiencies. Galvanized Products uses a MARR of 14 percent/year to evaluate investments. What is the ERR (external rate of return) of this investment?
Galvanized Products is considering purchasing a new computer system for its enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth 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 $55,000 per year through increased efficiencies. Galvanized Products uses a MARR of 18%/year to evaluate investments. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? c. Should the new computer system be purchased?
Galvanized Products is considering the purchase of a new computer system for its enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth 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 have 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 $55,000 per year through increased efficiencies. Galvanized Products uses a MARR of 18%/year to evaluate investments. a. What is the future worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on future worth? c. Should the new computer system be purchased?
Galvanized Products is considering the purchase of a new computer system for its enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth 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, GalvanizedProducts expects to pay a technician $25,000 per year to maintain the system but will save $55,000 per year through increased efficiencies. Galvanized Products uses a MARR of 18%/yr to evaluate investments. Solve a. What is the external rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on external rate of return? c. Should the new computer system be purchased?
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