eEgg is considering the purchase of a new distributed network computer system to help handle its warehouse inventories. The system costs $65,000 to purchase and install and $34,000 to operate each year. The system is estimated to be useful for 4 years. Management expects the new system to reduce the cost of managing inventories by $67,000 per year. The firms cost of capital (discount rate) is 12%.

REQUIRED:

The firm is in the 20% income tax bracket and uses double-declining-balance (DDB) depreciation with no salvage value. Given a four-year life, the DDB depreciation rate is 50% (i.e., 2 25%). In year four, record depreciation expense as the net book value (NBV) of the asset at the start of the year.