An engineering freshman wants to purchase a laptop computer for use during the 4

Question

An engineering freshman wants to purchase a laptop computer for use during the 4 1/2 years that she plans to study engineering at Texas Tech. After looking around a bit, she finds that a well-equipped laptop with software that can be purchased for $1,800 and that it should have a market value of at least $300 if she wants to sell it when she graduates after 4 1/2 years.   Assume that maintenance and supplies will cost $100 each six months. Use an interest rate of 12% with semi-annual compounding, and determine the present cost of owning and operating the computer.

$2,000

$2,300

$2,500

$2,400

$2,000

$2,300

$2,500

$2,400

Explanation / Answer

Interest (r) = 12% / 2 = 6%

N = 4.5 years * 2 = 9

NPV = -1,800 - 100 [(1+0.06)^9 - 1] / [0.06 * (1+0.06)^9] + 300 / (1+0.06)^9

NPV = -1,800 - 680.20 + 177.57

NPV = 2,302.63

Closest answer is B.

B. $2,300................(answer)

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