Calculating Present & Future Worth of Computer System Investment

In summary, the conversation discusses the cost and components of a computer system that a local business plans to purchase. The system includes 10 computers, 1 network server, necessary hardware and software, and upgrade and maintenance costs. After three years, the network will be replaced and the old system will be sold for $10,000 towards the replacement. Using an annual interest rate of 7%, the present worth and future worth of the system were calculated to be $44,737.57 and $54,805.45 respectively. The conversation also mentions finding the equivalent annual worth and determining the Internal Rate of Return (IRR) for the investment, but the individual is seeking guidance on how to approach these tasks.
  • #1
turkcyclone
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0

Homework Statement


A local business is going to purchase a computer system which consists of:
*10 computers @ $2,500.00 each
*1 network server @ $5,000.00
* Hardware and software required for each computer : $500.00 per
workstation
* Upgrades, maintenance: $50.00/month
* At the end of three years the network will be replaced and $10,000.00
salvage for the old system will be used toward replacement of the new
system
Assume: an annual interest rate of 7%
Calculate the present worth, the future worth and the annual equivalent worth of the
system.


Homework Equations


I already used the future and present worth formulas.



The Attempt at a Solution



I found total present worth to be: $44,737.57 and future worth to be: $54,805.45.


I understand how to find the future worth and present worth but I am really confused with finding the equivalent annual worth. I understand that this is when you a series of equal payments at regular intervals, but what are the regular intervals? Do I just divide the principle by 3 for the years? Also what formula should I be using, there are some different ones in my book.

I tried reading my engineering book but I can't figure out which technique to use. If someone could help me get started that would be great!

Also the next section asks me: The Internal Rate of Return (IRR) on an investment is the interest rate that makes a net present value = 0. Determine the IRR for the investment described in problem 1. Can someone help me get started because I can't find IRR in my notes or in the book.

Thanks for your help!
 
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  • #2


Sorry I couldn't find the edit button, but I emailed my professor and got the help I needed. So I don't need the help anymore, but thanks for reading the post!
 

1. How do I calculate the present worth of a computer system investment?

The present worth of a computer system investment can be calculated by taking into account the initial cost of the system, any maintenance or operating costs, the expected life span of the system, and the discount rate. Using these factors, you can use a present value formula to determine the present worth of the investment.

2. What is the future worth of a computer system investment?

The future worth of a computer system investment can be calculated by taking into account the initial cost of the system, any maintenance or operating costs, the expected life span of the system, and the discount rate. Using these factors, you can use a future value formula to determine the future worth of the investment.

3. How does the discount rate affect the present and future worth of a computer system investment?

The discount rate is used to account for the time value of money, and it affects the present and future worth of a computer system investment by adjusting the value of future cash flows. A higher discount rate will result in a lower present worth and a higher future worth, while a lower discount rate will result in a higher present worth and a lower future worth.

4. Do I need to consider inflation when calculating the present and future worth of a computer system investment?

Yes, it is important to consider inflation when calculating the present and future worth of a computer system investment. Inflation reduces the purchasing power of money over time, so it is important to adjust for inflation when determining the value of future cash flows.

5. Are there any limitations to using present and future worth calculations for computer system investments?

While present and future worth calculations are useful for evaluating the value of a computer system investment, they do have some limitations. These calculations do not take into account any unexpected costs or changes in technology that may affect the investment. It is important to also consider these factors when making investment decisions.

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