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Mr. Mohamed Yehia, capital budgeting analyst for XYZ, Inc., has been asked to evaluate a...

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Finance

Mr. Mohamed Yehia, capital budgeting analyst for XYZ, Inc., has been asked to evaluate a proposal. The manager of the IT department is currently trying to decide whether to replace one of the firms online computers with a new more sophisticated one. The new computer would require an initial investment of L.E.390,000; while the existing computer can be sold for L.E.240,000. The new computer would produce benefits of L.E.600,000 (in todays dollars) over the next 5 years. The existing computer would produce benefits of L.E.440,000 (also in todays dollars) over the same time period. Show how Mr. Mohamed Yehia would use the marginal analysis techniques to determine the following:

1) The marginal benefits of the proposed new computer.

2) The marginal costs of the proposed new computer.

3) The net benefit of the proposed new computer.

4) What should Mr. Mohamed recommend that the company do ?why?

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