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?

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

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