Kermit is considering purchasing a new computer system. The purchase price is $1

Question

Kermit is considering purchasing a new computer system. The purchase price is $100,000. Kermit will borrow one-fourth of the purchase price from a bank at 10 percent per year 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 $6,000 at that time. Over the 5-year period, Kermit expects to pay a technician $20,000 per year to maintain the system but will save $60,000 per year through increased efficiencies. Kermit uses a MARR of 12 percent to evaluate investments. What is the net present worth for this new computer system?

Explanation / Answer

Year Expense P.a. Saving Salvage Initial Outflow Instalment Net Inflow PVF @12% PV 0 98043.75 -98043.8 1 -$98,043.75 1 20000 77578 13141.89 44436.11 0.892857 $39,675.10 2 20000 77578 13141.89 44436.11 0.797194 $35,424.20 3 20000 77578 13141.89 44436.11 0.71178 $31,628.75 4 20000 77578 0 57578 0.635518 $36,591.86 5 20000 77578 6578 0 64156 0.567427 $36,403.84 Net Present Worth $81,679.99

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