A new computer network system is being considered for an organization. The initial cost of the...

A new computer network system is being considered for an organization. The initial cost of the system is $400,000. Annual maintenance and operating costs would be $25,000 per year. After 6 years, the system is expected to be worth $65,000. The desired ROI is 15% for it's projects. Determine the equivalent annual cost of the system.

Expert Solution

Years	Cash Outflow	PVF @ 15 % (B)	Present Value (A XB)
0	$ 4,00,000.00	1.00	$ 4,00,000.00
1	25000	0.8696	$ 21,739.13
2	25000	0.7561	$ 18,903.59
3	25000	0.6575	$ 16,437.91
4	25000	0.5718	$ 14,293.83
5	25000	0.4972	$ 12,429.42
6	25000	0.4323	$ 10,808.19
Salvage - 6 years	-65,000	0.4323	$ -28,101.29
	Total	5.217	$ 4,66,510.77

Equivalent Cost per year = Present Value of the Cash Flow / PVF from 1 to 6 years
Equivalent Cost per year =		4,66,510.77	"/"By	5.217
Equivalent Cost per year =		89,424.52


Answer = Equivalent Cost Per year =		$ 89,424.52

ekkarill92 answered 11 months ago

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