An engineering freshman wants to purchase a laptop computer for use during the 5
ID: 1189446 • Letter: A
Question
An engineering freshman wants to purchase a laptop computer for use during the 5 years that she plans to study engineering at Louisiana Tech University. Alter looking around a bit, she finds that a well-equipped laptop with software can be purchased for $2,000 and that it should have a market value of approximately $300 if she wants to sell it when she graduates alter 5 years. Assume that maintenance and supplies will cost $100 each six months Use an interest rate of 12%, compounded monthly, and determine the equivalent uniform monthly cost of owning and operating the computer.Explanation / Answer
First find Net present value of Laptop
NPV=Purchase cost + P.V of maintenance- P.V of salvage
Interest rate for 6 month =(1+0.12/12)^6-1=6.15%
Interest rate for 1 year =(1+0.12/12)^12-1=12.7%
NPV=2000+100/(1.0615)^1+100/(1.0615)^2+100/(1.0615)^3+100/(1.0615)^4+100/(1.0615)^5+100/(1.0615)^6+100/(1.0615)^7+100/(1.0615)^8+100/(1.0615)^9+100/(1.0615)^10-300/(1.127^5)
NPV=2561.7
Let monthly rate=x
NPV=x*Annuity factor(1% for 60 periods)=x*44.95
X=2561.7/44.95=$56.99
Thus equivalent monthly rate=$56.99