Question

the general hospital is evaluating new office equipment offered by four companies. in each case the interest rate is 15% and the useful life of the equipment is 4 years. use a present worth analysis to determine which company you should purchase the equipment from. company a company b company c company d first cost $15,000 $18,000 $25,000 $20,000 maintenance and operating cost (annual) $1,600 $1,100 $400 $900 annual benefit $8,000 $9,000 $13,000 $11,000 salvage value $3,000 $3,500 $6,000 $4,500

Answer 1

Conduct a present worth analysis to choose among different office equipment options based on their initial cost, operating costs, and benefits, considering a 15% interest rate over 4 years. For the Gizmo Company, any financial investment includes a 5% social benefit beyond the company's returns.

Step-by-step explanation:

The question requires conducting a present worth analysis for office equipment from four different companies, considering their initial costs, maintenance and operating costs, annual benefits, and salvage values. To determine which office equipment to purchase, one must compute the net present value (NPV) for each option, factoring in the interest rate of 15% over a useful life of 4 years. The option with the highest NPV, which reflects the best economic choice when considering the time value of money, should be chosen.

The Gizmo Company scenario outlined deals with the concept of social benefits of financial investments. Here, investments by the Gizmo Company have an additional social benefit of 5%. For example, if an investment has a 6% return for the company, it effectively has an 11% return when considering the broader social impact.