Question: Suppose we are thinking about replacing an old computer with a new one. The old one cost us $ 1 , 2 6 0 ,

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,260,000the new one will cost $1,520,000The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $ 260,000 after five years . The old computer is being depreciated at a rate of $252,000 per year . It will be completely written off in three years. If we don't replace it now, we will have to replace it in two yearsWe can sell it now for $380,000 ; in two years, it will probably be worth $ 116,000. The new machine will save us $ 286,000 per year in operating costs . The tax rate is 24 percent , and the discount rate is 10 percent Calculate the EAC for the old computer and the new computer (A negative answer should be indicated by a minus sign . Do not round intermediate calculations and round your answers to 2 decimal places , e.g.,32.16.) b. What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign . Do not round intermediate calculations and round your answer to 2 decimal places , e.g.,32.16.)

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!