Question

Exercise 12A-5 Basic Present Value Concepts [LO12-7] The Atlantic Medical Clinic can purchase a new computer system that will save $4,000 annually in billing costs. The computer system will last for twelve years and have no salvage value. Click here to view Exhibit 12B-1 and Exhibit 12B-2, to determine the appropriate discount factor(s) using tables. Required: What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic's required rate of return is: (Round your final answers to the nearest whole dollar amount.) Maximum Price 1. Eight percent 2. Twelve percent

Answer 1

Calculate the requirements as follows: $ Α 1 Particulars 2 Annual savings 3 Useful life (years) 4 Discount Factor 5 PVAF(8%, 12 years) 6 Present Value (Maximum Price that should be paid) B Amount 4,000 12 8% 7.536 30,144 | $ $ 8 Particulars 10 Annual savings 11 Useful life (years) 12 Discount Factor 13 PVAF(12%, 12 years) 14 Present Value (Maximum Price that should be paid) 15 Amount 4,000 121 12% 6.194 24,776 $ 16 17 Eight Percent 18 Twelve Percent Maximum Price S 30,144 S 24,776

Calculations: Amount Particulars 2 Annual savings 4000 3 Useful life (years) 12 4 Discount Factor 0.08 5 PVAF(8%,12 years) 7.536 6 Present Value (Maximum Price that should be paid) =B2%B5 Amount Particulars 10 Annual savings 11 Useful life (years) 12 Discount Factor 13 PVAF(12%,12 years) 14 Present Value (Maximum Price that should be paid) 4000 12 0.12 16.194 =B10*B13 15 Movi Maximum Price 16 17 Eight Percent 18 Twelve Percent =B6 =B14 For any queries or doubts related to format or any values please post in comment section, I would take that up.