Question 3 Alpha software is considering replacing one of their computer servers with a newer model, the current model in question is now worth $1,200,000 (future market values is forecasted to drop by 20% per year). If kept the current server system will require an immediate overhaul that costs S200,000. The operation cost of this server is $170,000 for the first year and will increase by 33% afterwards. A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of $120,000 for the 1" year which increases by 32% for subsequent years. The new server's (challenger's) market value will drop 25% per year through its service life.

Question 3 Alpha software is considering replacing one of their computer servers with a newer model, the current model in question is now worth $1,200,000 (future market values is forecasted to drop by 20% per year). If kept the current server system will require an immediate overhaul that costs S200,000. The operation cost of this server is $170,000 for the first year and will increase by 33% afterwards. A new server model is available which has a 10 years of service life, costs $2,500,000 with O&M costs of $120,000 for the 1" year which increases by 32% for subsequent years. The new server's (challenger's) market value will drop 25% per year through its service life.

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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