A Company Rented a Computer for $800 a Month: A Financial Analysis
In the world of business, companies often face tough decisions when it comes to investing in technology. One such decision is whether to rent or purchase a computer system. In this article, we will delve into the financial implications of renting a computer for $800 a month and compare it to the cost of purchasing the same computer system with a monthly maintenance charge of $100. We will also determine the purchase price of the computer system that would have resulted in a net savings of $1000 after five years.
The Cost of Renting a Computer for $800 a Month
Renting a computer system for $800 a month may seem like a reasonable expense, especially for small businesses. However, over time, this cost can add up significantly. For instance, after five years, the total cost of renting the computer system would be $48,000.
The Cost of Purchasing a Computer System with Monthly Maintenance Charge
On the other hand, purchasing a computer system outright may seem like a more expensive option at first glance. However, when considering the long-term costs, it may actually be more cost-effective. For instance, if a company had purchased the same computer system for $41,000 and paid a monthly maintenance charge of $100, they would have spent a total of $47,000 over five years [1]. This would have resulted in a net savings of $1000 compared to renting the computer system.
The Purchase Price of the Computer System
To determine the purchase price of the computer system that would have resulted in a net savings of $1000 after five years, we can use the following formula:
Purchase Price + (Monthly Maintenance Charge x 60 months) = Total Cost – Net Savings
Substituting the given values, we get:
Purchase Price + ($100 x 60) = $48,000 – $1000
Purchase Price + $6000 = $47,000
Purchase Price = $41,000 [2]
Therefore, the purchase price of the computer system that would have resulted in a net savings of $1000 after five years is $41,000.
Conclusion
In conclusion, while renting a computer system may seem like a more affordable option in the short term, purchasing the same system may actually be more cost-effective in the long run. In the case of a company renting a computer for $800 a month, purchasing the same computer system for $41,000 and paying a monthly maintenance charge of $100 would have resulted in a net savings of $1000 after five years.