The Atlantic Medical Clinic can purchase a new computer system that will save $7

Question

The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value. click here to view Exhibit 11B-1 and Exhibit 11B2, to determine the appropriate discount factor(s) using tables Required: Up to how much should the Atlantic Medical Clinic be witling to pay for the new computer syste if the clinic's required rate of retun is: (Use the appropriate table to determine the discount factor(s)) Present Value Purchase x Discount Factor Present Value 1. Sixteen percent

Explanation / Answer

Answer:

We have been provided with the information that,

Annual Saving in billing cost =$7000

Salvage value =0

Life= 8 year

Discount factor, it we look in the table exhibit 11B-2 then

at 16% for 8 year=4.344

at 16% for 8 year=3.837

Now we will calculate the present value as under

Purchase

x

Discount
factor

=

Present
value

1

Sixteen
Percent

7000

x

4.344

=

30408

2

Twenty
Percent

7000

x

3.837

=

26859

Purchase

x

Discount
factor

=

Present
value

1

Sixteen
Percent

7000

x

4.344

=

30408

2

Twenty
Percent

7000

x

3.837

=

26859

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