(Present value tables are required.)Baker Enterprises is evaluating the purchase of a new computer network system.The new system would cost $24,000 and have a useful life of 6 years.At the end of the system's life,it would have a residual value of $3,000.Annual operating cost savings from the new system would be $8,800 per year for each of the six years of its life.Baker Enterprises has a minimum required rate of return of 12% on all new projects.The net present value of the new network system would be closest to:

Question

Quizplus · Accepted Answer

To calculate the net present value (NPV), we need to find the present value (PV) of cash inflows and outflows. First, we calculate the PV of the cash outflow, which is the initial cost of the system:

PV of cost = $24,000 / (1 + 12%)^0 = $24,000

Next, we calculate the PV of the cash inflows, which are the annual operating cost savings:

PV of inflows = $8,800 * (1 - 1 / (1 + 12%)^6) / 12% = $40,914.52

Finally, we subtract the PV of the cash outflow from the PV of the cash inflows to get the NPV:

NPV = PV of inflows - PV of cost - residual value
NPV = $40,914.52 - $24,000 / (1 + 12%)^0 - $3,000 / (1 + 12%)^6
NPV = $13,697.71

Therefore, the best choice is C) $13,698 because it is closest to the calculated NPV.

(Present Value Tables Are Required