Question
Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a pur chase price
Galvanized Products is considering the purchase of a new computer system for their enterprise data management system. The vendor has quoted a pur chase 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 computer system is expected to last five 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%/yr to evaluate investments. a. What is the internal rate of return of this investment? b. What is the decision rule for judging the attractiveness of investments based on internal rate of return? c. Should the new computer system be purchased?
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