Question

A firm is planning to upgrade its computer network. The upgrade has an estimated cost of $25,000. The upgrade will result in less downtime and higher productivity, with an estimated savings of $10,000 per year. The equipment will remain productive for the next 5 yr, the annual maintenance cost is S2000, and the equipment will have no salvage value after the 5 yr. Assuming an interest rate of 6%, the uniform annual benefit (UAB) is most nearly (A) $1,100 (B) $2,065 (C) $5,900 (D) $8,000

Answer 1

Option B 2065

AM AN Year 0 1 ܝܙ ܚ ܚ ܠ ܩ ܗ ܢ ܗ ܩ ml AO AP AR AS AT Cash Flow Annual Savings Annual Cost Net Cash Flow PV @ 6% Present Value $(25,000.00) $ (25,000.00) 1 $(25,000.00) $ 10,000.00 $ (2,000.00) $ 8,000.00 0.943396 $ 7,547.17 | | $ 10,000.00 $ (2,000.00) $ 8,000.00 0.8899961 $ 7,119.97 $ 10,000.00 $ (2,000.00) $ 8,000.00 0.8396190 $ 6,716.95 $ 10,000.00 $ (2,000.00 $ 8,000.00 0.792094 $ 6,336.75 $ 10,000.00 $ 2,000.00) $ 8,000.00 0.747258 $ 5,978.07 NPV $ 8,698.91 PVAF(0.06,5) 4.21 Uniform Annual Benefit $ 2,065 10 11

AM AN AP AQ AT AO Cash Flow AS PV @ 6% Year Annual Savings Annual Cost -25000 10000 10000 10000 10000 10000 -2000 -2000 -2000 -2000 -2000 NPV PVAF(0.06,5) Uniform Annual Benefit AR Net Cash Flow =SUM(AO2:AQ2) =SUM(AO3:AQ3) ESUM(A04:AQ4) =SUM(A05:A05) =SUM(A06:AQ6) =SUM(A07:A07) =AS2/1.06 =AS3/1.06 =AS4/1.06 =AS5/1.06 =AS6/1.06 Present Value =AR2*AS2 =AR3*AS3 =AR4*AS4 =AR5*AS5 =AR6*AS6 =AR7*AS7 =SUM(AT2:AT7) =SUMAS3:AS7) =AT8/AT9 10 11 12