Question
The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $85,000 and has an
The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $85,000 and has an expected life of five years. The mayor estimates the following savings will result if the system is purchased:
| Year or Period | Savings | PV of $1 at 7% | PV of an ordinary annuity at 7% | |||||||||
| 1 | $ | 30,000 | 0.935 | 0.935 | ||||||||
| 2 | 35,000 | 0.873 | 1.808 | |||||||||
| 3 | 40,000 | 0.816 | 2.624 | |||||||||
| 4 | 25,000 | 0.763 | 3.387 | |||||||||
| 5 | 22,000 | 0.713 | 4.100 | |||||||||
If Trenton uses a 7% discount rate for capital-budgeting decisions, the net present value of the computer system would be
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Challenge Of Management Accounting Change
Authors: John Burns, Mahmoud Ezzamel, Robert Scapens
1st Edition
075066004X, 978-0750660044
