Explanation of Solution
a.
Spreadsheet set up for buy-alternative calculation:
Let us consider the assumption inputs are given below:
- Server cost is $2,500.
- Software costs is $1,250.
- Straight-line depreciation is 3 years.
- Maintenance percentage range varies from 2 to 7 %...
Explanation of Solution
b.
Spreadsheet set up for lease-alternative calculation:
Let us consider the assumption inputs are given below:
- The cost of 3 year lease is $285.
- The cost of 2 year lease is $335.
- The cost of 1 year lease is $415.
- Discount for 20 to 30 computers is 5%.
- Discount for 31 to 50 computers is 10%...
Explanation of Solution
c.
(1)
Organization needs 20 servers for 5 years.
For Buy-Alternative calculation:
The given inputs are,
- Server cost is $2,500.
- Software costs is $1,250.
- Straight-line depreciation is 3 years.
- Maintenance percentage is 3 %.
The formula to calculate the total buy payment is given below:
Total buy payment = Depreciation + Maintenance
For 1 year:
Server cost = Server cost × servers purchased
= 2500 × 20
= $50,000
Software cost = Software cost × servers purchased
= 1250 × 20
= $25,000
Depreciation1 = (Server1 cost + software1 cost) / Depreciation year
= (50000 + 25000) / 3
= $25,000
Interest Expense = Server cost × maintenance percentage
= 50000 × 0.03
= $1,500
Maintenance = Server cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 25000 + 1500
= $26,500
For 2 year:
Depreciation2 = Depreciation1
= $25,000
Interest Expense = Server cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = Server cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 25000 + 1500
= $26,500
For 3 year:
Depreciation3 = Depreciation1
= $25,000
Interest Expense = Server cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = Server cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 25000 + 1500
= $26,500
For 4 year:
Depreciation = (Server cost + software cost) / Depreciation year
= (0 – 0)/3
= 0
Interest Expense = Server cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = Server cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 0 + 1500
= $1,500
For 5 year:
Depreciation = (Server cost + software cost) / Depreciation year
= (0 – 0)/3
= 0
Interest Expense = Server cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = Server cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 0 + 1500
= $1,500
Total Server cost:
Total Server cost = Sum of the server cost for 5 years
= 50000+0+0+0+0
= $50,000
Total Software cost:
Total Software cost = Sum of the software cost for 5 years
= 25000+0+0+0+0
= $25,000
Total depreciation:
Total depreciation= Sum of the depreciation for 5 years
= 25000+25000+25000+0+0
= $75,000
Salvage value:
Salvage value = (Total Server cost + Total Software cost) – Total depreciation
= 50000+25000 – 75000
= $0.00
Total cost:
Sum of yearly costs less salvage value = sum of totals buy expenses for 5 years
= 26,500 + 26,500 + 26,500 + 1,500 + 1,500
= $82,500
Finally, the sum of the yearly costs less salvage value is,
Total = total cost – salvage value
= 82,500 – 0.00
= $82,500
Therefore, the sum of the yearly costs less salvage value for buy-alternative is “$82,500”.
For Lease-Alternative calculation:
The given inputs are,
- The cost of 3 year lease is $285.
- The cost of 2 year lease is $335.
- The cost of 1 year lease is $415.
- Discount for 20 to 30 computers is 5%.
- Discount for 31 to 50 computers is 10%.
The formula to calculate the total lease payment is given below:
Total lease payment = (Payment for leased servers – Discount amount) × 12
For 1 year:
Payment for leased servers = Payment per unit × Servers leased
= 285 × 20
= 5700
Discount amount = Payment for leased servers × Discount
= 5700 × 0.05
= 285
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (5700 – 285) × 12
= 5415 × 12
= $64,980
For 2 year:
Payment for leased servers = Payment per unit × Servers leased
= 285 × 20
= 5700
Discount amount = Payment for leased servers × Discount
= 5700 × 0.05
= 285
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (5700 – 285) × 12
= 5415 × 12
= $64,980
For 3 year:
Payment for leased servers = Payment per unit × Servers leased
= 285 × 20
= 5700
Discount amount = Payment for leased servers × Discount
= 5700 × 0.05
= 285
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (5700 – 285) × 12
= 5415 × 12
= $64,980
For 4 year:
Payment for leased servers = Payment per unit × Servers leased
= 335 × 20
= 6700
Discount amount = Payment for leased servers × Discount
= 6700 × 0.05
= 335
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (6700 – 335) × 12
= 6365 × 12
= $76,380
For 5 year:
Payment for leased servers = Payment per unit × Servers leased
= 335 × 20
= 6700
Discount amount = Payment for leased servers × Discount
= 6700 × 0.05
= 335
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (6700 – 335) × 12
= 6365 × 12
= $76,380
Total cost:
Total = Sum of Lease payments for 5 years
= 64,980 + 64,980 + 64,980 + 76,380 + 76,380
= $347,700
Therefore, the sum of the yearly costs for lease-alternative is “$347,700”.
The screenshot ofBuy-Alternative calculation andLease-Alternative calculation:
(2)
Organization needs 20 servers for first 2 years and 40 servers for next 3 years.
For Buy-Alternative calculation:
The given inputs are,
- Server cost is $2,500.
- Software costs is $1,250.
- Straight-line depreciation is 3 years.
- Maintenance percentage is 3 %.
The formula to calculate the total buy payment is given below:
Total buy payment = Depreciation + Maintenance
For 1 year:
Server1 cost = Server cost × servers purchased
= 2500 × 20
= $50,000
Software1 cost = Software cost × servers purchased
= 1250 × 20
= $25,000
Depreciation1 = (Server1 cost + software1 cost) / Depreciation year
= (50000 + 25000)/3
= $25,000
Interest Expense = Server1 cost × maintenance percentage
= 50000 × 0.03
= $1,500
Maintenance = Server1 cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 25000 + 1500
= $26,500
For 2 year:
Depreciation2 = Depreciation1
= $25,000
Interest Expense = Server1 cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = Server1 cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 25000 + 1500
= $26,500
For 3 year:
Server2 cost = Server2 cost × servers purchased
= 2500 × 20
= $50,000
Software2 cost = Software2 cost × servers purchased
= 1250 × 20
= $25,000
Depreciation3 = Depreciation2 + (Server3 cost + software3 cost) / Depreciation year
= 25,000 + (50000 + 25000)/3
= 25,000 + 25,000
= $50,000
Interest Expense = (Server2 cost × maintenance percentage)
= 50000× 0.03
=$1,500
Maintenance = (Server1 cost × maintenance percentage) + (Server2 cost × maintenance percentage)
= (50000 × 0.03) + (50000 × 0.03)
= 1500 + 1500
= $3,000
Total buy payment = Depreciation + Maintenance
= 50000+3000
= $53,000
For 4 year:
Depreciation4 = Depreciation2
= $25,000
Interest Expense = Server cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = (Server1 cost × maintenance percentage) + (Server2 cost × maintenance percentage)
= (50000 × 0.03) + (50000 × 0.03)
= 1500 + 1500
= $3,000
Total buy payment = Depreciation + Maintenance
= 25000 + 3000
= $28,000
For 5 year:
Depreciation5 = Depreciation4
=$25,000
Interest Expense = Server cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = (Server1 cost × maintenance percentage) + (Server2 cost × maintenance percentage)
= (50000 × 0.03) + (50000 × 0.03)
= 1500 + 1500
= $3,000
Total buy payment = Depreciation + Maintenance
= 25000 + 3000
= $28,000
Total Server cost:
Total Server cost = Sum of the server cost for 5 years
= 50000+0+50000+0+0
= $100,000
Total Software cost:
Total Software cost = Sum of the software cost for 5 years
= 25000+0+25000+0+0
= $50,000
Total depreciation:
Total depreciation= Sum of the depreciation for 5 years
= 25000+25000+50000+25000+25000
= $150,000
Salvage value:
Salvage value = (Total Server cost + Total Software cost) – Total depreciation
= 100000+50000 – 150000
= $0.00
Total cost:
Sum of yearly costs less salvage value = sum of totals expenses for 5 years
= 26,500 + 26,500 + 53,000 + 28,000 + 28,000
= $162,000.00
Finally, the sum of the yearly costs less salvage value is,
Total = total cost – salvage value
= 162,000– 0.00
= $162,000
Therefore, the sum of the yearly costs less salvage value for buy-alternative is “$162,000”.
For Lease-Alternative calculation:
The given inputs are,
- The cost of 3 year lease is $285.
- The cost of 2 year lease is $335.
- The cost of 1 year lease is $415.
- Discount for 20 to 30 computers is 5%.
- Discount for 31 to 50 computers is 10%.
The formula to calculate the total lease payment is given below:
Total lease payment = (Payment for leased servers – Discount amount) × 12
For 1 year:
Payment for leased servers = Payment per unit × Servers leased
= 335 × 20
= 6700
Discount amount = Payment for leased servers × Discount
= 6700 × 0.05
= 335
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (6700 – 335) × 12
= 6365 × 12
= $76,380
For 2 year:
Payment for leased servers = Payment per unit × Servers leased
= 335 × 20
= 6700
Discount amount = Payment for leased servers × Discount
= 6700 × 0.05
= 335
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (6700 – 335) × 12
= 6365 × 12
= $76,380
For 3 year:
Payment for leased servers = Payment per unit × Servers leased
= 285 × 40
= 11400
Discount amount = Payment for leased servers × Discount
= 11400 × 0.10
= 1140
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (11400 – 1140) × 12
= 10260 × 12
= $123,120
For 4 year:
Payment for leased servers = Payment per unit × Servers leased
= 285 × 40
= 11400
Discount amount = Payment for leased servers × Discount
= 11400 × 0.10
= 1140
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (11400 – 1140) × 12
= 10260 × 12
= $123,120
For 5 year:
Payment for leased servers = Payment per unit × Servers leased
= 285 × 40
= 11400
Discount amount = Payment for leased servers × Discount
= 11400 × 0.10
= 1140
Total lease payment = (Payment for leased servers – Discount amount) × 12
= (11400 – 1140) × 12
= 10260 × 12
= $123,120
Total cost:
Total = Sum of Lease payments for 5 years
= 76,380 + 76,380 + 123,120 + 123,120 + 123,120
= $522,120.00
Therefore, the sum of the yearly costs for lease-alternative is “$522,120”.
The screenshot ofBuy-Alternative calculation andLease-Alternative calculation:
(3)
Organization needs 20 servers for first 2 years, 40 servers for next 2 years, and 50 servers for last year.
For Buy-Alternative calculation:
The given inputs are,
- Server cost is $2,500.
- Software costs is $1,250.
- Straight-line depreciation is 3 years.
- Maintenance percentage is 3 %.
The formula to calculate the total buy payment is given below:
Total buy payment = Depreciation + Maintenance
For 1 year:
Server1 cost = Server cost × servers purchased
= 2500 × 20
= $50,000
Software1 cost = Software cost × servers purchased
= 1250 × 20
= $25,000
Depreciation1 = (Server1 cost + software1 cost) / Depreciation year
= (50000 + 25000)/3
= $25,000
Interest Expense = Server1 cost × maintenance percentage
= 50000 × 0.03
= $1,500
Maintenance = Server1 cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 25000 + 1500
= $26,500
For 2 year:
Depreciation2 = Depreciation1
= $25,000
Interest Expense = Server1 cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = Server1 cost × maintenance percentage
= 50000 × 0.03
= $1,500
Total buy payment = Depreciation + Maintenance
= 25000 + 1500
= $26,500
For 3 year:
Server2 cost = Server2 cost × servers purchased
= 2500 × 20
= $50,000
Software2 cost = Software2 cost × servers purchased
= 1250 × 20
= $25,000
Depreciation3 = Depreciation2 + (Server3 cost + software3 cost) / Depreciation year
= 25,000 + (50000 + 25000)/3
= 25,000 + 25,000
= $50,000
Interest Expense = (Server2 cost × maintenance percentage)
= 50000× 0.03
=$1,500
Maintenance = (Server1 cost × maintenance percentage) + (Server2 cost × maintenance percentage)
= (50000 × 0.03) + (50000 × 0.03)
= 1500 + 1500
= $3,000
Total buy payment = Depreciation + Maintenance
= 50000 + 3000
= $53,000
For 4 year:
Depreciation4 = Depreciation2
= $25,000
Interest Expense = Server cost × maintenance percentage
= 0 × 0.03
= 0
Maintenance = (Server1 cost × maintenance percentage) + (Server2 cost × maintenance percentage)
= (50000 × 0.03) + (50000 × 0.03)
= 1500 + 1500
= $3,000
Total buy payment = Depreciation + Maintenance
= 25000 + 3000
= $28,000
For 5 year:
Server3 cost = Server3 cost × servers purchased
= 2500 × 10
= $25,000
Software2 cost = Software2 cost × servers purchased
= 1250 × 10
= $12,500
Depreciation5 = Depreciation4+ (Server5 cost + software5 cost) / Depreciation year
= 25000 + (25000 + 12500) / 3
= 25000 + 12500
= $37,500
Interest Expense = Server cost × maintenance percentage
= 25000 × 0...
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