Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 16 percent compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $3.000 at that time. Over the 5-year period. Galvanized Products expects to pay a technician $20.000 per year to maintain the system but will save $50,000 per year through increased efficiencies. Galvanized Products uses a MARR of 14 percent/year to evaluate investments. What is the ERR (external rate of return) of this investment?

Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 16 percent compounded annually. The loan is to be repaid using equal annual payments over a 3-year period. The computer system is expected to last 5 years and has a salvage value of $3.000 at that time. Over the 5-year period. Galvanized Products expects to pay a technician $20.000 per year to maintain the system but will save $50,000 per year through increased efficiencies. Galvanized Products uses a MARR of 14 percent/year to evaluate investments. What is the ERR (external rate of return) of this investment?

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The
vendor has quoted a purchase price of $100,000. Galvanized Products is planning to borrow one-fourth of the purchase price
from a bank at 16 percent compounded annually. The loan is to be repaid using equal annual payments over a 3-year period.
The computer system is expected to last 5 years and has a salvage value of $3.000 at that time. Over the 5-year period,
Galvanized Products expects to pay a technician $20.000 per year to maintain the system but will save $50,000 per year
through increased efficiencies. Galvanized Products uses a MARR of 14 percentryear to evaluate investments. What is the ERR
(external rate of return) of this investment?
A 14.57%
B 16.52%
12.62%
13.24%

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