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Calculating the minimum level of annual savings

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Lawrence Hospital is tax exempt. It would like to install a new computer costing $232,000 with a useful life of 8 years. The hospital plans to sell the computer for $20,000 after 5 years. The proper discount rate for the hospital is 9%. Find the minimum annual savings due to this computer to justify its purchase.

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The solution determines the minimum annual savings needed to justify its purchase.

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Let R minimal annual savings per year.
Number of years for which computer will be used=n=5
Discount rate=i=9%
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Solution provided by:
Lokesh Jain, MSc
Education
  • BEng (Hons) , Birla Institute of Technology and Science, India
  • MSc (Hons) , Birla Institute of Technology and Science, India
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