Vancouver Shakespearean Theater's board of directors is considering the replacement of the theater's lighting system. The old system requires two people to operate it, but the new system would require only a single operator. The new lighting system will cost $129,750 and save the theater $27,000 annually for the next eight years.
Required:
1. Prepare a table showing the proposed lighting system's net present value for each of the following discount rates: 8 percent, 10 percent, 12 percent, 14 percent, and 16 percent. Use the following headings in your table. Comment on the pattern in the right-hand column.
Discount Rate | Annuity Discount | Factor Annual Savings | Present Value of Annual Savings | Acquisition Cost | Net Present value |
2. Build a spreadsheet: Construct an Excel spreadsheet to solve the preceding requirement. Show how the solution will change if the following information changes: the new lighting system will cost $131,000, and the annual savings amount to $27,500.
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