The Atlantic Medical Clinic can purchase a new computer system that will save $5,000 annually in...
The Atlantic Medical Clinic can purchase a new computer system that will save $5,000 annually in billing costs. The computer system will last for three years and have no salvage value. Use Excel to solve.
Note: Round individual calculations to two decimal places then final total to nearest dollar.
Required: Up to how much should the Atlantic Medical Clinic be willing to pay for the new computer system if the clinic’s required rate of return is:
11% _______________
8% ________________
PLEASE show excel formulas when appropriate.
Homework Answers
Solution:
Atlantic Medical Clinic be willing to pay for the new computer system maximum equal to present value of annual savings.
Present value of annual savings considering 11% rate of return = $5,000 * Cumulative PV factor at 11% for 3 periods
= $5,000 * 2.443715
= $12,219
Present value of annual savings considering 8% rate of return = $5,000 * Cumulative PV factor at 8% for 3 periods
= $5,000 * 2.577097
= $12,885
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