Q#5. A company must choose between new computer systems: Alpha and Bravo, to replace the existing system to support its ongoing operations. System alpha costs $50,000 and will result in savings of $19,000 per year during its four-year life. System Bravo costs $75,000 and will result in savings of $15,000 per year during its nine-year life. The appropriate discount rate is 8%. Which system should the firm choose and why? Assume both systems can be replicated indefinitely and there are no taxes.

Q#5. A company must choose between new computer systems: Alpha and Bravo, to replace the existing system to support its ongoing operations. System alpha costs $50,000 and will result in savings of $19,000 per year during its four-year life. System Bravo costs $75,000 and will result in savings of $15,000 per year during its nine-year life. The appropriate discount rate is 8%. Which system should the firm choose and why? Assume both systems can be replicated indefinitely and there are no taxes.

Cornerstones of Cost Management (Cornerstones Series)

4th Edition

ISBN:9781305970663

Author:Don R. Hansen, Maryanne M. Mowen

Publisher:Don R. Hansen, Maryanne M. Mowen

Chapter19: Capital Investment

Section: Chapter Questions

Problem 15E: Gina Ripley, president of Dearing Company, is considering the purchase of a computer-aided...

See similar textbooks

Similar questions

1
Basic Present Value Concepts The Atlantic Medical Clinic can purchase a new computer system that will save $7,000 annually in billing costs. The computer system will last for eight years and have no salvage value. Required: What is the maximum price (i.e., the price that exactly equals the present value of the annual savings in billing costs) that the Atlantic Medical Clinic should be willing to pay for the new computer system if the clinic’s required rate of return is: 1. Sixteen percent? 2. Twenty percent?
Vikrambhai
Please correct answer and step by step solution
Q. 3. You have an opportunity to install solar panels on your home. The upfront cost of installing the system is $30,000 and the system is expected to save you $140 per month in electricity costs. The expected lifetime of the system is 25 years. a) Write down the formula for the internal rate of return on this project. b) Use Excel to graph the internal rate of return at different discount rates, ranging from 0% to 10%. Attach your graph. c) Over the last 20 years the rate of return on the U.S. stock market has been an average of 7% (using the annual rate of growth in the Wilshire 5000 index). Given that you could invest your $30,000 in the stock market, does the investment in solar panels make sense from an economic perspective? Why or why not? d) How high would the monthly electricity savings need to be to justify this investment if the internal rate of return needed to be at least 7%.
d) Simple Payback Period I want the solution to part d please, i need to know the simple Payback period for this problem. thank you
Need help throughout this problem please
NEED ASAP!!! OWN SOLUTION NOT FROM OTHER SITES. THANKS The management of KC Company is considering the purchase of a $27.000 machine that would reduce operating costs by $7,000 per year. At the end of the machine's five-year useful life, it will have zero scrap value. The company's required rate of return is 12%. Determine the net present value of the investment in the machine. look for the attachment CHOICES: a) 30,917.8 b) 30,458.65 c) 29,352.6
None
5/ a/ You propose to replace windows to save energy. With a discount rate of 6%, what yearly energy savings are required to offset the $25,000 project cost? Consider an investment period of 10 years, and a lifetime of the windows of 30 years b/ Assume that the windows save the amount of energy calculated in 5/a. If the windows would have needed to be replaced anyways at a cost of $20,000 for standard efficiency windows, what is the ROI and Payback for upgrading the windows to the energy efficient model used in Sa/ for the upgrade cost of $5,000?
Give me right solution according to the question.... Help me urgenttttttttt Installing an automated production system costing $278,000 is initially expected to save Zia corporation $52,000 in expenses annually. If the system needs $5000 in operating and maintenance costs each year and has a salvage values of $25,000 at Year 10, what is the IRR of this system? If the company wants to earn at least 12% on all investments, should this system be purchased?
a. What is the net present value (at the discount rate of 10%) of this project?b. Perot’s engineers have determined that spending $10 million more on development will allow them to add even more advanced features. Having a more advanced chip will allow them to price the chip $50 higher in both years ($870 for year 1 and $700 for year 2). What is the NPV of the project if this option is implemented?c. If sales are only 200,000 the first year and 100,000 the second year, what would the NPV of the project be? Assume the development costs and sales price are as originally estimated. Development cost - $1,250,000Estimated development time - 9 monthsPilot testing - $200,000Ramp-up cost - $400,000Marketing and support cost - $150,000/yrSales & Production volume - $60,000/yrUnit production cost - $100Unit price - $205Interest rate - 8%