Question
Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $90,000. Galvanized
Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $90,000. Galvanized Products is planning to borrow 1/4th of the purchase price from a bank at 12.00 % compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer 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 $30,000 per year to maintain the system but will save $59,000 per year through increased efficiencies. Galvanized Products uses a MARR of 20.00 %/year to evaluate investments. a. What is the present worth of this investment? b. What is the decision rule for judging the attractiveness of investments based on present worth? Should the new computer system be purchased?
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