The Atlantic Medical Clinic can purchase a new computer syst

The Atlantic Medical Clinic can purchase a new computer system that will save $8,000 annually in billing costs. The computer system will last for nine years and have no salvage value. Click here to view Exhibit 11B-1 and Exhibit 11B-2, to determine the appropriate discount factor(s) using tables Required: Up to how much should the Atlantic Medical Clinic be willing to pay for the new computer system if the clinic\'s required rate of return is: (Use the appropriate table to determine the discount factor(s).) Present Value Purchase Discount Factor = Present Value 1. Eleven percent 2. Twelve percent References eBook & Resources

Solution

Answer Present Value Purchase x Discount factor = Present Value 1 Eleven percent $8,000.00 x 5.537048 = $44,296.38 2 Twelve Percent $8,000.00 x 5.328250 = $42,626.00 Working We can calculate the discount factor using following formula, Discount factor = [1-(1+r)^-n]/r r = rate per year n = no.of years Discount factor @ 11% for 9 years = [1-(1+0.11)^-9]/0.11 = 5.537048 Discount factor @ 12% for 9 years = [1-(1+0.12)^-9]/0.12 = 5.328250