The following information covers Probrems to A consulting company is interested
ID: 2523070 • Letter: T
Question
The following information covers Probrems to A consulting company is interested in buying a new complete computer system with printers, plotters and servers. The purchased price is $1,200,000 and a life span that minimizes the EUAC. The salvage price of the complete computer m is $300,415 The revenue/saving and cost information based on previous records for a similar company is as follows: Monthly Saving/Revenue $93,200 $94,000 $93,000 Total Monthly Cost $74,100 $74,000 74,200 $1,700,000 1,500,000 $1,300,000 $1,100,000 $900,000 $700,000 500,000 Year 2013 2014 2015 Problem 1: (50 Points) A) Determine the most economical life span B) Determine the average annual expected revenue with a certainty of 95% C) Determine the average annual expected cost with a certainty of 95% D) Determine the internal rate of return for this computer system E) if the company does not have funds to purchase the computer system, determine the equal annual payment of the loan based on a 4% interest rate Problem 2: (30 Points) Determine the book value of the computer system after 3 years considering the following strategies/purposes: A) Appraise the computer system by the current owner (seller) B) Appraise the computer system by a buyer C) File a tax return for the year 2016Explanation / Answer
A. Determinig most economical life span value in ($) Cost of a computer = 1200000 Less: Solvage value = (300415) useful value of computers = 899585 most economical life span = $899585/$200000 = 4years 6months
B. 2013:- 93200*95%*12 = 1062480
2014 :- 94000*95%*12 = 1071600
2015:- 93000*95%*12 = 1060200
Average annual expected return = (1062480+1071600+1060200)/3 = 1064760
C. 2013:- 74100*95%*12 = 844740
2014 :- 74000*95%*12 = 843600
2015:- 74200*95%*12 = 845880
Average annual expected return = (844740+843600+845880)/3 = 844740
D. IRR is the rate where NPV is zero.
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