afreshman wants to purchasena PC for use during the 4 1/2 years that she plans t

Question

afreshman wants to purchasena PC for use during the 4 1/2 years that she plans to study engineering at Texas Tech. After looking around a bit, she finds that a well-equipped PCwith software can be purchased for $2170 and that it should have a market value of at least $1700 if she wants to sell it when she graduates after 4 1/2 years. Assume that maintenance and supplies will cost 100 each six months. Use an internet rate of 12% with monthly compounding, and determine the present cost of owning and opereating the computer.

Explanation / Answer

Interest (r) = 12% / 2 = 6%

N = 4.5 years * 2 = 9

NPV = -2,170 - 100 [(1+0.06)^9 - 1] / [0.06 * (1+0.06)^9] + 1700 / (1+0.06)^9

NPV = -2,170 - 680.20 + 1006.23

NPV = 1843.97

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