Advanced Computer Company intends to upgrade its information system or switch to a new information system. Upgrading the old system involves a cost of RM97500 and increases the useful life of the system for 7 years. The value of the old system book is RM19500, but it can be sold at RM24000. Upgrading the old system will save the salary of 1 employee by RM19400 a year, while the new system can save the salary of 2 employees. The operating cost is RM15950 per year. The upgrade of the old system is expected to increase by 3.5 per cent over the previous year's profit of RM553000.

The supplier of the new system quotes the new system at RM224800 with a useful life of 7 years. The operating cost is RM14260 per year. The average speed of a new system is 12% faster than other systems and is expected to increase the company's profit by 4.5 percent.

The corporate tax rate for companies is 35 percent. The cost of capital is 11 percent. After 7 years, the scrap value is expected to be RM12000 for the new system and RM7500 for the upgraded old system. For tax purposes, the information system is depreciated for 5 years at the following depreciation rates:

Percentage Year (%)

1 20.00

2 32.00

3 19.20

4 11.52

5 11.52

6 5.76

Required:

Using worksheet software, provide economic feasibility analysis to determine whether companies should upgrade old information systems, or replace them with new information systems. The analysis will involve the calculation of cash flow after tax for years 1 to 7 as well as the payback period, NPV and IRR for each option. State the summary for your analysis. Upload the worksheet document here.