1. A consulting firm is considering purchasing a new computer system for its corporate management needs. A seller offered a purchase price of $240,000.

   The consulting firm plans to borrow a quarter of the purchase price from a bank at 8% compounded annual interest. The loan will be repaid in equal annual payments over a six-year period. The remainder of the purchase price can be obtained through other sources of financing (for example, not a loan or money to be repaid).

   The computer system is expected to last eight years and has a $8,000 recovery value for that time.

   Over the 8-year period, the consulting firm also expects to pay a technician $25,000 per year to maintain the system, but will also save an estimated $55,000 per year through increased efficiency in operations.

   The project manager of the consulting firm determined that an annual MARR of 12% should be used to evaluate this investment project.

   What is the external rate of return of the investment project? Should a new computer system be recommended for purchase?