24 Jul WHAT IS THE NPV OF THE DECISION TO REPLACE THE COMPUTER NOW?
Suppose we are thinking about replacing an old compute Show more Problem 10-36 Replacement Decisions [LO2] Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1250000; the new one will cost $1510000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $250000 after five years. The old computer is being depreciated at a rate of $250000 per year. It will be completely written off in three years. If we dont replace it now we will have to replace it in two years. We can sell it now for $370000; in two years it will probably be worth $115000. The new machine will save us $285000 per year in operating costs. The tax rate is 38 percent and the discount rate is 12 percent. a1 Calculate the EAC for the old computer and the new computer. (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places e.g. 32.16.) EAC New computer $ Old computer $ a2 What is the NPV of the decision to replace the computer now? (Negative amount should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places e.g. 32.16.) Show less
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