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4. A company needs to acquire a system for its office. The purchase price of the system has been estimated to be US$50,000, and
4. A company needs to acquire a system for its office. The purchase price of the system has been estimated to be US$50,000, and the system will reduce annual expenses by US$18,000 per year in real dollars. Historically, these annual expenses have escalated at an average rate of 8% per year and this is expected to continue into the future. Maintenance services will be contracted for, and their cost per year (in actual dollars) is constant at US$3,000. What is the minimum life of the system such that the new system can be economically justified? Assume that the market value is zero at all times. The firm's MARR is 25% which includes an adjustment for anticipated inflation in the economy. Assume a tax rate of 32% and straight-line depreciation.
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