Pierce Labs, located in Gaspe Bay, purchased a radio communication system three years ago for $310,000. It has a potential buyer for the system who is willing to pay $85,000. A new system will cost $390,000 and is eligible for a 15 percent ITC.
It is estimated the new system would provide the following stream of cost savings over the next five years:
Year         Cost savings
1 ..................$99,000
2 ....................88,000
3 ....................77,000
4 ....................66,000
5 ....................55,000
The tax rate is 30 percent, and the estimated cost of capital is 12 percent. Should the new system be purchased?