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In: Economics

A consulting firm is considering the purchase a new computer drafting system for $120,000. It is...

A consulting firm is considering the purchase a new computer drafting system for $120,000. It is expected this will eliminate one employee, who with benefits earns $32,000 annually. Annual operating and maintenance cost for the new system will be $4,000. The firm believes that in 7 years the system will be obsolete and have a salvage value of 10% of the first cost. Using as an annual interest rate of 10%, decide on the economic viability of the plan. Use annual worth for comparison.

Solutions

Expert Solution

AW of computer system = -120000*(A/P,10%,7) + 32000 - 4000 + 0.1*120000*(A/F,10%,7)

= -120000*0.205405 + 32000 - 4000 + 0.1*120000*0.105405

= 4616.26

As AW is positive, this is a good investment

Rahul Sunny answered 3 years ago
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