Question

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 1/4th of the purchase price from a bank at 18.00% 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 $4,800 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $23,000 per year to maintain the system but will save $58,000 per year through increased efficiencies. Galvanized Products uses a MARR of 15.00%/year to evaluate investments.

What is the present worth of this investment?

Answer 1

Galvanized product will borrow (100000/4) i.e. $25000 at 18% compounded annually

SO, annually it will pay $11498.11 to repay the loan in 3 year

So, Total worth of Investment= 100000- 4800/(1.15)^5 - 11498.11/(1.15) - (23000-58000)/(1.15)- 11498.11/(1.15^2) - (23000-58000)/(1.15)^2 - 11498.11/(1.15^3)- (23000-58000)/(1.15)^3 - (23000-58000)/(1.15)^4 - (23000-58000)/(1.15)^5

= $188686.2 (As 15% is the MARR)