Five years ago, the City of Paranoya spent $30,000 to purchase a computerized radar system called W.A.S.T.E. (Watching Aliens Sent To Earth). Recently, a sales rep from W.A.S.T.E. Radar Company told the city manager about a new and improved radar system that can be purchased for $50,000. The rep also told the manager that the company would give the city $10,000 in trade on the old system. The new system will last 10 years. The old system will also last that long but only if a $4,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision regarding which system is more desirable:

Required:
What is the City of Paranoya's net present value for the decision described above? Use the total costapproach.

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Old System New System Cost of radar system $30,000 $50,000 Current salvage value $10,000 $5,000 Salvage value in 10 years $8,000 Annual operating costs $34,000 $29,000 Upgrade required in 5 years $4,000 Discount rate 14% 14%