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
Problem 1PS
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Question
1. Determine the NPV of the new computer system (use 3 decimal places for the PV factor)

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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