A is considering replacing its existing computer system which was purchased 2 years ago for $325,000. The system can be sold today for $200,000. It is being depreciated using the prime cost method cover a 5-year effective life. A new computer system will cost $500,000 to purchase and install. Replacement of the computer system would not involve any change in net working capital. Assume a 30% tax rate.

1. Calculate the book value of the existing computer system.
2. Calculate the after-tax proceeds from its sale at $200,000.
3. Calculate the initial investment associated with the replacement project.
4. What is the opportunity cost in the context of capital budgeting and why should it be taken into account? Give an example of the opportuity cost of using the excess capacity of an asset.