5-32. The city museum will have a Picasso exhibit on loan for 3 years. As part of the conditions of the loan, a specialized alarm and security system must be installed. High Security Company will install a suitable system for a $50,000 initial payment and $2,500 per month in monitoring fees. Tight Security Company will install a suitable system for a $75,000 initial payment and $1,675 per month in monitoring fees. Both security systems would be used for 3 years. Assuming an annual discount rate of 9 percent with monthly compounding, which contract has the lowest net present cost?

PROBLEM 5-32 SOLUTION

(Annualized Cost)

INPUT DATA Model A Model B Initial

Outflow

PMT

nper

rate

=PV(rate,nper,pmt,fv,type)

PV of Operating Costs $- $-

Acquisition Cost $- $-

Net Present Cost $- $-

=PMT(rate,nper,PV,fv,type)

Annualized Cost #NUM! #NUM!