Question

Justice Enterprises is evaluating the purchase of a new computer net system would cost $24,000 and have a useful life of Syears. At the end of the systems of a new computer network system. The new would have a residual value of $2000. Annual operating cost savings from the new sys be $8500 per year for each of the five years of its life. Justice Enterprises has a minimum required rate of return of 12% on all new projects. The net present value of the new system would be closest to: (Round any intermediary calculations and your final nearest dollar.) savings from the new system would diary calculations and your final answer to the Present Value of $1 Periods 10% 0.751 0.683 0.621 0.564 12% 0.712 0.636 0.567 0.507 14% 0.675 0.592 0.519 0.456 16% 0.641 0.552 0.476 0.410 16% Present Value of Annuity of $1 Periods 10% 2.487 3.170 3.791 4.355 12% 2.402 3.037 3.605 4.111 14% 2.322 2.914 3.433 2.246 2.798 3.274 3.685 T 3.889 A) $5509. B) $7777 C) $6643 D) $31,777

Answer 1

The net present value of the new computer system is $4,755.

Step-by-step explanation:

The net present value of the new computer system can be calculated by finding the present value of the annual operating cost savings and the residual value of the system, and subtracting the initial cost of the system.

Using the provided present value tables for an interest rate of 12%, the present value of the annual cost savings would be:

Year 1: $8,500 x 0.793 = $6,745

Year 2: $8,500 x 0.712 = $6,052

Year 3: $8,500 x 0.636 = $5,406

Year 4: $8,500 x 0.567 = $4,823

Year 5: $8,500 x 0.507 = $4,305

And the present value of the residual value would be:

$2,000 x 0.712 = $1,424

Adding up these present values, we get:

$6,745 + $6,052 + $5,406 + $4,823 + $4,305 + $1,424 = $28,755

Finally, we subtract the initial cost of $24,000:

$28,755 - $24,000 = $4,755

Therefore, the net present value of the new system is $4,755.

Answer 2

closest to: B) $7777

Step-by-step explanation:

NPV ( net presetn value) cashflow - investment

cost savings present value (ordinary annuity):

`C * (1-(1+r)^(-time) )/(rate) = PV\\`

C $8,500

time 5 years

rate 0.12

`8500 * (1-(1+0.12)^(-5) )/(0.12) = PV\\`

PV $30,640.5977

salvage value present value:

`(salvage)/((1 + rate)^(time) ) = PV`

Salvage $2,000

time 5

rate 0.12

`(2000)/((1 + 0.12)^(5) ) = PV`

PV 1,134.85

NPV: 30,640.60 + 1,134.85 - 24,000 = 7,775.45