The computer system used for production and administration control at a large precast concrete company is being considered for replacement. Of the available replacement systems, Company A has been considered the best. However, it is anticipated that after one year, the Company B model will become available, with significant technological modifications. The salvage value projections for the three systems are summarized. Assuming that the performance of all three would otherwise be comparable, should we replace the existing system either this year or next year? Assume that the MARR equals 12%, and the useful life is 5 years in all cases.

Year 0 1 2 3 4 5 Salvage value at end of the year Existing computer Challenger 1 20,000 25,000 16,000 22,000 13,000 21,000 11,000 20,000 8,000 16,000 3,000 10,000 2 Challenger II 24,000 23,000 23,000 22,000 16,000 10,000