EXERCISE 12A–4 Basic Present Value Concepts [LO5]

The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value.

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:

1. Sixteen percent?

2. Twenty percent?