A firm purchased a computer for 1500 EUR; the computer is used for 4 years and is then sold for 500 EUR. Annual disbursement for operating, maintenance, and software costs equals 500 EUR/year over the 4 - year period. The anual savings by using this computer is 1500 EUR/year. On the basis of a 10% MARR, determine if the decision to buy the analog computer was economically sound. Use the following measures of investment worth: a) Net Present Value (Present Worth); b) Internal Rate of Return (IRR); c) External Rate of Return (ERR); d) Simple Payback Period.
A firm purchased a computer for 1500 EUR; the computer is used for 4 years and is then sold for 500 EUR. Annual disbursement for operating, maintenance, and software costs equals 500 EUR/year over the 4 - year period. The anual savings by using this computer is 1500 EUR/year. On the basis of a 10% MARR, determine if the decision to buy the analog computer was economically sound. Use the following measures of investment worth: a) Net Present Value (Present Worth); b) Internal Rate of Return (IRR); c) External Rate of Return (ERR); d) Simple Payback Period.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Concept explainers
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
a)
b)
c) External Rate of Return (ERR);
d) Simple Payback Period
Transcribed Image Text:A firm purchased a computer for 1500 EUR; the computer is used for 4 years and is then sold
for 500 EUR.
Annual disbursement for operating, maintenance, and software costs equals 500 EUR/year over
the 4 – year period.
The anual savings by using this computer is 1500 EUR/year.
On the basis of a 10% MARR, determine if the decision to buy the analog computer was
economically sound.
Use the following measures of investment worth:
a) Net Present Value (Present Worth);
b) Internal Rate of Return (IRR);
c) External Rate of Return (ERR);
d) Simple Payback Period.
Expert Solution
This question has been solved!
Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.
Step by step
Solved in 3 steps with 2 images
Knowledge Booster
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.Recommended textbooks for you
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education