The Atlantic Medical Clinic can purchase a new computer system that will save $3

Question

The Atlantic Medical Clinic can purchase a new computer system that will save $3,000 annually in billing costs. The computer system will last for six years and have no salvage value. Click here to view Exhibit 11B-1 and Exhibit 118-2, to determine the appropriate discount factorís) using tables. Required: Up to how much should the Atlantic Medical Clinic be willing to pay for the new computer system If the clinic's required rate of return is: (Use the appropriate table to determi factor(s).) Present Value Discount Factor Purchase Present Value 1. Ten percent 2. Twelve percent

Explanation / Answer

a) At 10%, PV of $1 for 6 years is 4.3553

So, 3000*4.3553 = $13065.78

b) At 12%, PV of $1 for 6 years is 4.1114

So, 3000*4.1114 = $12334.22

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