Question

# A company is evaluating two different computer systems for purchase. The company uses a MARR of...

A company is evaluating two different computer systems for purchase. The company uses a MARR of 4% to evaluate investments. The information for the two systems is in the following table:

 A B First Cost \$20,000 \$10,000 Annual Maintenance \$5,000 \$4,000 Annual Cost Savings \$7,000 \$5,000 Salvage Value \$1,300 \$1,000 Expected Life 3 years 2 years

Based on present worth analysis, what is the present worth of system A?

Hints:

1. What do you need to consider when evaluating multiple alternatives using present worth analysis?

2. How could you use the annual worth to easily calculate the present worth?

Based on present worth analysis, what is the present worth of system B?

Hints:

1. What do you need to consider when evaluating multiple alternatives using present worth analysis?

2. How could you use the annual worth to easily calculate the present worth?

For each system,

Net annual benefit = Annual savings - Annual maintenance cost

System A: \$(7,000 - 5,000) = \$2,000

System B: \$(5,000 - 4,000) = \$1,000

Present Worth, System A (\$) = - 20,000 + 2,000 x PVIFA(4%, 3) + 1,300 x PVIF(4%, 3)

= - 20,000 + 2,000 x 2.7751 + 1,300 x 0.889 = - 20,000 + 5,550 + 1,156

= - 13,294

Present Worth, System B (\$) = - 10,000 + 1,000 x PVIFA(4%, 2) + 1,000 x PVIF(4%, 2)

= - 10,000 + 1,000 x 1.8861 + 1,000 x 0.9246 = - 10,000 + 1,886 + 925

= - 7,189

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