Question
The mayor of Trenton is considering the purchase of a new computer system for the city's tax department. The system costs $91,000 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 $91,000 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 10% | PV of an ordinary annuity at 10% | |||||||||
| 1 | $ | 36,000 | 0.909 | 0.909 | ||||||||
| 2 | 41,000 | 0.826 | 1.736 | |||||||||
| 3 | 46,000 | 0.751 | 2.487 | |||||||||
| 4 | 31,000 | 0.683 | 3.170 | |||||||||
| 5 | 28,000 | 0.621 | 3.791 | |||||||||
If Trenton uses a 10% discount rate for capital-budgeting decisions, the net present value of the computer system would be:
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Intermediate Accounting Volume 1
Authors: Donald E. Kieso, Jerry J. Weygandt, Terry D. Warfield, Irene M. Wiecek, Bruce J. McConomy
13th Canadian Edition
1119740460, 978-1119740469
