Question

Exercise 12A-5 Basic Present Value Concepts [LO12-7) The Atlantic Medical Clinic can purchase a new computer system that will save $9,000 annually in billing costs. The computer system will last for eleven years and have no salvage value Click here to view Exhibit 128_1 and Exhibit 128-2. to determine the appropriate discount factors) using tables Required: What is the maximum price le, the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required rate of return is: (Round your final answers to the nearest whole dollar amount.) Maximum Price 1 in percent Ton percent 2

Answer 1

Amount 9,000 11 Particulars 2 Annual savings S 3 Useful life (years) 4 Discount Factor 5 PVAF(9%,11 years) Present Value (Maximum Price that should be paid) | $ 9% 6.805 61,245 8 $ Amount 9,000 Particulars 10 Annual savings 11 Useful life (years) 12 Discount Factor 13 PVAF(10%,11 years) 14 Present Value (Maximum Price that should be paid 10% 6.495 58,455 $ 15 16 17 Nine Percent 18 Ten Percent Maximum Price S 61,245 S 58,455

Calculations: Particulars Amount 2 Annual savings 9000 3 Useful life (years) 11 4 Discount Factor 0.09 5 PVAF(9%,11 years) 6.805 6 Present Value (Maximum Price that should be paid) =B2*B5 Particulars Amount 10 Annual savings 9000 11 Useful life (years) 11 12 Discount Factor 10.1 13 PVAF(10%,11 years) 6.495 14 Present Value (Maximum Price that should be paid) =B10*B13 16 Maximum Price =B6 17 Nine Percent 18 Ten Percent =B14 For any queries or doubts related to format or any values please post in comment section, I would take that up.