Payroll Inc. Office Services is considering the purchase of a new computer system to replace the one in operation. Data on the new computer system are as follows:
Cost $
Salvage value at the end of five years $
Useful life, in years
Annual operating cost $
If the existing computer system is kept and used, it would require the purchase of additional hardware a year from now costing $ After the use of the system for years, the salvage value would be $ Additional information on the existing system is as follows:
Additional years of use
Annual operating costs $
Remaining book value $
Current salvage value $
Cost of capital
The company uses the straightline method of depreciation.
Required:
Complete a Net Present Value analysis, and recommend whether or not the new system should be purchased.
