Fremont Company plans to replace its customer service computing equipment now to improve service DCF Analysis, and and reduce costs. The county manager has made the following estimates to support the decision.

Nonfinancial factors New equipment cost, including installation and training ........cccccceecee $120,000 c¥e He

(LO 3) j ; Salvage value of new equipment at the end of its life... cece 0 eXcel i New equipment useful life.............. lAa/4= 0009, Leprte. Vad 4 years ey Salvagewvalueicfioldiequipmeeen tmuednecesc icnleeen $ 0 hhe.com/hilton Annual increase in COntribUtiON MAPQiN ......ccceveecseececseecsesseevsereveesseteeses 25,000 Os CW 1 ne" 9 ae /NA VANTE C0)o fte ntniy o)( CONS SKEW ATIOT Sr ca ndecaisn dosoonaenoadootedaceogassaoucadoesuntuneteoctonqaanyi 2 7116;000 i | & Conte Lo IM@onne taxenate ies sete Aesiae tase asp ereees. eee case are cient cee Re ee A 40%

nt Des DLP DISCOUNT OME, eee ee mere Nee emt he ek see eM ae ee nee 10%

Required

+ | aa vt BUILD YOUR OWN SPREADSHEET. Build an Excel spreadsheet to create an analysis similar to the 44 ve one in Exhibit 14-7 to solve requirements

(a) and (b).

ae iu

a. Net present value of the equipment replacement decision using the NPV function. (398 6)

Problem 14.67 Equipment Replacement, DCF Analysis, and Sensitivity Analysis

(LO 3)

eXcel mhhe.com/hilton4e

b. Internal rate of return of the equipment replacement decision using the IRR function. g, Ss 9,

c. Should Fremont Company replace its computing equipment? What nonfinancial factors might b important to this decision