A company is considering replacing the computer it currently uses. It was 3 years ago at a cost of $ 10,000. The operation and maintenance costs for that computer have been and will remain in the future at $ 1,000 per year. If a new computer is purchased, a bonus of $5,000 would be obtained in exchange for the current one. The cost of the new computer is $15,000 with an estimated useful life of 5 years and a salvage value of $3,000; with operating and maintenance expenses of $1,500.

If the current computer is kept, it will be necessary to purchase another small computer to satisfy the demand in processing capacity. The current computer still has a 5-year lifespan, with a salvage value of $500. The cost of the small computer is $5,000. At the end of its 5-year useful life, the salvage value will be $800. The operating and maintenance costs are $600 yearly. a) Using the NPV method and a MARR of 30%, determine the best choice.

Consider that the costs and investments made in the past are not considered in the calculation of cash flows.

Answer rating: 100% (QA)

Since tax rate is not provided in the question the taxes are ignored Hence the... View the full answer