Galvanized Products is considered bring the purchase of a new computer system for its

enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 15% compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The com puter system is expected to last 5 years and has a salvage value of $5,000 at that time. Over the 5 year period, Galvanized Products expects to pay a technician $25,000 per year to maintain the system but will save $55,000 per year through increased efficiencies. Galvanized Products uses a MARR of 18%year to evaluate investments.

a What is the annual worth of this investment? (detailed cash flow diagram and a excel sheet)

b. What is the decision rule for judging the attractiveness of investments based on annual

worth?

c. Should the new computer system be purchased?