Your IT department currently rents a server for $10000 per year including all maintenance expenses. It is considering purchasing a more advanced server instead and comparing the two options. The new server could be purchased $40000. The new server will require maintenance expense of $4000 per year starting next year but will reduce power consumption costs by $1000 per year. Assume the new server has a useful life of 10 years with no salavage value. Suppose the appropriate discount rate is 9% per year and the server was purchased today. a) Should the IT department continue to rent the current server or purchase the new server? Show your calculations and explain your decision. b) You will note that the NPV of both options is negative. Explain your thinking as to why the IT department's project will be funded?

Answer rating: 100% (QA)

a To determine whether the IT department should continue renting the current server or purchase the new server we need to compare the net present value NPV of both options NPV is a financial metric th... View the full answer