suppose we are thinking about replacing an old computer with a new one. the old one...

60.1K

Verified Solution

Question

Finance

suppose we are thinking about replacing an old computer with anew one. the old one cost $1,800.000; the new one will cost,$2183.000. the new machine will be depreciated straigth line tozero over its five year life. it will probably be worth about$540.000 after five years. the old computer is being depreciated ata rate of $408.000 per year. it will be completely written off inthree years. if we dont replace it now, we will have to replace itin two years. we can sell it now for 612000; in two years it willprobably be worth $180000. the new machine will save us $359000 peryear in operating costs. the tax rate is 22 percent and thediscount rate is 9 percent. a. calculate the EAC for the oldcomputer and the new computer. a2. what is the NPV of the decisionto replace the computer now?

Answer & Explanation Solved by verified expert

3.8 Ratings (345 Votes)

SEE THE See Answer

Get Answers to Unlimited Questions

Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!

Membership Benefits:

Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!

Become a Member

Transcribed Image Text

suppose we are thinking about replacing an old computer with anew one. the old one cost $1,800.000; the new one will cost,$2183.000. the new machine will be depreciated straigth line tozero over its five year life. it will probably be worth about$540.000 after five years. the old computer is being depreciated ata rate of $408.000 per year. it will be completely written off inthree years. if we dont replace it now, we will have to replace itin two years. we can sell it now for 612000; in two years it willprobably be worth $180000. the new machine will save us $359000 peryear in operating costs. the tax rate is 22 percent and thediscount rate is 9 percent. a. calculate the EAC for the oldcomputer and the new computer. a2. what is the NPV of the decisionto replace the computer now?