Question 2 25 pts Huskies Inc. has decided to acquire a new computer system. Aft

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Question 2 25 pts Huskies Inc. has decided to acquire a new computer system. After considering several options it has narrowed its search to two systems Apple System: purchase cost of $273379 and operating costs of $24780 in year 1, $23656 in year 2, and $21736 in year 3 (paid at the end of each year) Dell System: purchase cost of $227973 and operating costs of $37228 in year 1, $38774 in year 2, and $38562 in year 3 (paid at the end of each year) Both computer systems have a service life of 3 years. Based on the defender-challenger approach and given that the MARR is 9%, reinvestment rate is 7%, and minimum external rate of return is 6%, compute the incremental Benefit-Cost ratio of choosing the most expensive computer system and then indicate your recommendation as follows: write down as your answer the value of the incremental B-C ratio if your recommendation is the Apple System; write down as your answer "1" (without the commas) if your recommendation is the Dell System. Note: round your answer to two decimal places, and do not include spaces, currency signs, plus or minus signs, nor commas

Explanation / Answer

Incremental benefit cost ratio if the Apple computer system is chooses (most expensive)

Incremental benefit cost ratio of Apple = Benefits/Cost = 37133.85/45406 = 0.82

Recommendation : 1 = Dell system

Because the incremental benefit cost ratio of Apple is lower than 1 (i.e. 0.82)

In defender Challenger approach, the interest rate used for discounting is MARR (i.e. 9%). Therefore the rate of 9% is used for calculating present values.

Year Saving in operating costs by choosing Apple (i) PVF@9% (ii) Present value of saving in operating cost [(i)*(ii)] 1 (37228-24780) = 12448 0.917 11414.82 2 (38774-23656) = 15118 0.842 12729.36 3 (38562-21736) = 16826 0.772 12989.67 Total benefits (A) 37133.85 0 Incremental cost to Purchase Apple Computer system (B) 1 (273379-227973) = 45406

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