Question
143. Billings Office Services is considering the purchase of a new computer system to replace the one in operation. Data on the new computer
143. Billings Office Services is considering the purchase of a new computer system to replace the one in operation. Data on the new computer system are: Cost Salvage value at the end of five years Useful life, in years Annual operating cost $12,000 $ 1,000 5 $ 4,000 If the existing computer system is kept and used, it would require the purchase of additional hardware a year from now costing $2,000. After using the system for five years, the salvage value would be $300. Additional information on the existing system is: Additional years of use Annual operating costs Remaining book value Current salvage value Cost of capital 5 $ 9,000 $12,000 $ 3,000 12% The company uses the straight-line method of depreciation. Required: Should the new system be purchased? Why or why not?
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