An engineering Freshman wants to purchase a laptop computer for use during the 4
ID: 1093762 • Letter: A
Question
An engineering Freshman wants to purchase a laptop computer for use during the 41/2 years that she plans to study engineering at Texas Tech (Now that's good planning!). After looking around a bit , she finds that a well-equipped laptop with software 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 4/12 years. Assume that maintenance and supplies will cost $100 each six months. Use an interest rate of 12% with monthly compoundind, and determine the present cost of owning and operati ng the computer.
Explanation / Answer
semi annual interest rate = 6%
compounded monthly
EAR = (1 + 0.06/6)^6 -1 =6.15%
Present cost = 1800 + 100 * PVIFA(6.15%,9) - 300/1.0615^9
= 1800 + 100 * 6.7575 - 300/1.0615^9
= 2305.54