Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $ 90,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 11% 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 $ 4,500O at that time. Over the 5-year period, Galvanized Products expects to pay a technician $ 21,000 per year to maintain the system but will save $ 58,000 per year through increased efficiencies. Galvanized Products uses a MARR of 17%/year to evaluate investments. a. What is the external rate of return of this investment? ERR = % Do all calculations to 5 decimal places and round your final answer to 2 decimal places. Tolerance is +/-2 b. What is the decision rule for judging the attractiveness of investments based on external rate of return? IF ERR 2 MARR, ACCEPT; OTHERWISE, REJECT. ♥ c. Should the new computer system be purchased?
Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has quoted a purchase price of $ 90,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 11% 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 $ 4,500O at that time. Over the 5-year period, Galvanized Products expects to pay a technician $ 21,000 per year to maintain the system but will save $ 58,000 per year through increased efficiencies. Galvanized Products uses a MARR of 17%/year to evaluate investments. a. What is the external rate of return of this investment? ERR = % Do all calculations to 5 decimal places and round your final answer to 2 decimal places. Tolerance is +/-2 b. What is the decision rule for judging the attractiveness of investments based on external rate of return? IF ERR 2 MARR, ACCEPT; OTHERWISE, REJECT. ♥ c. Should the new computer system be purchased?
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Galvanized Products is considering purchasing a new computer system for their enterprise data management system. The vendor has
quoted a purchase price of $ 90,000. Galvanized Products is planning to borrow one-fourth of the purchase price from a bank at 11%
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 $ 4,500 at that time. Over the 5-year period, Galvanized Products expects to pay a technician $
21,000 per year to maintain the system but will save $ 58,000 per year through increased efficiencies. Galvanized Products uses a
MARR of 17%/year to evaluate investments.
a. What is the external rate of return of this investment?
ERR =
% Do all calculations to 5 decimal places and round your final answer to 2 decimal places. Tolerance is +/-2
b. What is the decision rule for judging the attractiveness of investments based on external rate of return?
IF ERR 2 MARR, ACCEPT; OTHERWISE, REJECT.
c. Should the new computer system be purchased?
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