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.

Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables.

Required:

Up to how much should the Atlantic Medical Clinic be willing to pay for the new computer system if the clinics required rate of return is: (Use the appropriate table to determine the discount factor(s).)

PURCHASE x DISCOUNT FACTOR = PRESENT VAUE

1. 16%

2. 20%