An office currently has 30 personal computers with 10 printers, The computers cost $4,000 each and the printers were $250 each; they were purchased two years ago. The market value of the computers is estimated to be $750 each today and the printers $75 each today. The present equipment will be useful for five more years and have no salvage value at that time. Operating expenses are $250 for each computer and $100 for each printer per year. A new network system is being considered that would have 30 terminals with a cost of $3,000 each; 5 printers would be purchased at $1,000 each. The life of the new system is 6 years with a salvage value of $300 for the terminals and $400 for the printers at the end of that time. Operating expenses is espexted to be $5,000 per year for the total system.

What are the sunk costs at this point ?

What is the best option with a disired 20% return on invested capital. (Assume all salvage value decreases linearly over the life of each of the components)

(Applied Economic Analysis for Technologists, Engineers, and Managers, Chap 10, problem 22 revised)