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Determine the NPV of the new computer system

Determine the NPV of the new computer system

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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1. Determine the NPV of the new computer system (use 3 decimal places for the PV factor)

Billings Office Services is considering the purchase of a new computer system to replace the one in operation. Data on the new computer system are as follows: Cost $12,000 Salvage value at the end of five years Useful life, in years Annual operating cost $1,000 5 $4,000 If the existing computer system is kept and used, it would require the purchase of additional hardware a year from now costing $2,000. After the use of the system for five years, the salvage value would be $300. Additional information on the existing system is as follows: Additional years of use Annual operating costs Remaining book value Current salvage value Cost of capital $9,000 $12,000 $3,000 12% The company uses the straight-line method of depreciation with no mid-year convention.
Transcribed Image Text:Billings Office Services is considering the purchase of a new computer system to replace the one in operation. Data on the new computer system are as follows: Cost $12,000 Salvage value at the end of five years Useful life, in years Annual operating cost $1,000 5 $4,000 If the existing computer system is kept and used, it would require the purchase of additional hardware a year from now costing $2,000. After the use of the system for five years, the salvage value would be $300. Additional information on the existing system is as follows: Additional years of use Annual operating costs Remaining book value Current salvage value Cost of capital $9,000 $12,000 $3,000 12% The company uses the straight-line method of depreciation with no mid-year convention.
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