Question

Project engineer found that it is necessary for his project to install new software, the purchase price for the software is SR 2,870,325, the software needs update every 3 years and it will cost him SR 328.854, along with a yearly operating cost of SR 47,866. This system will last for 7 years what is the amount he should invest now to cover the cost of this system, use interest rate of 9%. Don't use the negative sign in the answer

Answer 1

A.	Purchase Price of Software	SR 2,870,325
B.	PV of Cost of Updation	240,925.53
	SR 328,854 * PVAF(9%,7 Years)

Computation of PVAF(9%, 7 Years)
r	1+r	(1+r)^-n	1- [(1+r)^-n]	[1- [(1+r)^-n]] /r
9%	1.0900	0.5470	0.4530	5.0333

C.

Year	Cash Outflow	PVF at 9%	PV of Cash flow
3	328,854	0.7722	253,935.63
6	328,854	0.5963	196,084.90
	PV of Cash flow		450,020.52

D.	Amount required to be invested to Cover the Cost of the System = A + B + C
	Amount required to be invested to Cover the Cost of the System = SR 2,870,325 + 240,925.53 + 450,020.52
	Amount required to be invested to Cover the Cost of the System = SR 3,561,271.05