Your company will generate $45,000 in cash flow each year for the next nine years from a new information database. The computer system needed to set up the database costs $260,000. Assume you can borrow the money to buy the computer system at 8.25 percent annual interest.

Well, it sounds like you're getting into a bit of a predicament with this information database. Let me juggle the numbers for you and see if I can clown around with a solution.

So, you're going to generate $45,000 in cash flow each year for the next nine years. Let me grab my calculator and do some math (please excuse any clownish mistakes I might make).

After crunching the numbers, it seems like your total cash flow over those nine years would be $405,000 ($45,000 x 9). That's not too shabby!

Now, onto the computer system. It's going to cost you a whopping $260,000. Ouch! But fear not, my friend, because borrowing money is an option. The annual interest rate of 8.25 percent seems a bit high, but let's see if it's worth the chuckles.

Calculating the interest on the loan, it amounts to $21,450 ($260,000 x 8.25%). That's a decent chunk of change, but we've got to consider it as part of the overall costs.

So, if we subtract the interest from the cash flow, you'll have $383,550 in total earnings over the nine years ($405,000 - $21,450). That's still a nice payoff!

Now, whether that's enough to cover the cost of the computer system and make a profit is something you'll need to decide. Don't forget about your other clown competitors out there! But hey, at least you'll have a shiny new information database to play with.

Just remember, numbers can be a bit slippery and unpredictable, so make sure to consult a financial expert before making any big decisions. And as always, keep a smile on your face, even when the numbers make you frown!

To determine if it is financially viable to borrow money to buy the computer system, we need to calculate the net present value (NPV) of the cash flows generated by the database over the next nine years.

First, let's calculate the present value factor (PVF) using the formula:

PVF = 1 / (1 + r)^n

Where:
r = interest rate
n = number of years

In this case, the interest rate (r) is 8.25% or 0.0825, and the number of years (n) is 1.

PVF = 1 / (1 + 0.0825)^1
PVF = 0.9229

Now, let's calculate the present value (PV) of each year's cash flow using the formula:

PV = Cash Flow * PVF

For each of the nine years, the cash flow is $45,000.

PV1 = $45,000 * 0.9229 = $41,532.60
PV2 = $45,000 * 0.9229 = $41,532.60
PV3 = $45,000 * 0.9229 = $41,532.60
PV4 = $45,000 * 0.9229 = $41,532.60
PV5 = $45,000 * 0.9229 = $41,532.60
PV6 = $45,000 * 0.9229 = $41,532.60
PV7 = $45,000 * 0.9229 = $41,532.60
PV8 = $45,000 * 0.9229 = $41,532.60
PV9 = $45,000 * 0.9229 = $41,532.60

Now, let's calculate the total present value (TPV) by summing up the present values of each year's cash flow:

TPV = PV1 + PV2 + PV3 + PV4 + PV5 + PV6 + PV7 + PV8 + PV9
TPV = $41,532.60 + $41,532.60 + $41,532.60 + $41,532.60 + $41,532.60 + $41,532.60 + $41,532.60 + $41,532.60 + $41,532.60
TPV = $373,793.40

Now, let's calculate the net present value (NPV) by subtracting the initial investment cost (computer system cost) from the total present value:

NPV = TPV - Computer System Cost
NPV = $373,793.40 - $260,000
NPV = $113,793.40

Therefore, the net present value (NPV) of the investment is $113,793.40. This positive NPV indicates that it is financially viable to borrow money at 8.25% interest to buy the computer system, as the project is expected to generate a positive return.

To determine whether it is financially beneficial to borrow the money to buy the computer system, we can calculate the Net Present Value (NPV). NPV is a financial indicator that helps evaluate the profitability of an investment by comparing the present value of cash inflows and outflows.

To calculate the NPV, we need to discount the future cash flows back to the present value. The formula to calculate the present value of cash flows is:

PV = CF / (1 + r)^n

Where:
PV = Present Value
CF = Cash Flow
r = Discount Rate (interest rate)
n = Number of years

Let's calculate the present value of the cash flows generated by the information database over the nine years:

PV = $45,000 / (1 + 0.0825)^1 + $45,000 / (1 + 0.0825)^2 + ... + $45,000 / (1 + 0.0825)^9

Now, let's calculate the present value of the initial investment (computer system cost):

PV_initial_investment = $260,000 / (1 + 0.0825)^1

To determine the NPV, we subtract the present value of the initial investment from the present value of cash flows:

NPV = PV_cash_flows - PV_initial_investment

If the NPV is positive, it indicates that the investment is profitable. If it is negative, it suggests that the investment might not be financially beneficial.

Now, let's plug in the numbers to calculate the NPV:

PV_cash_flows = $45,000 / (1 + 0.0825)^1 + $45,000 / (1 + 0.0825)^2 + ... + $45,000 / (1 + 0.0825)^9

PV_initial_investment = $260,000 / (1 + 0.0825)^1

NPV = PV_cash_flows - PV_initial_investment

After performing the calculations, you will find the NPV of the investment.