HQ Department Store is considering replacement of its existing computer system. A new system has been proposed which runs faster, experiences fewer breakdowns and, as a result, promises considerable savings in operating costs. The following information on the two systems is available:

Existing System New System

Original cost	$300 000	$875 000
Remaining useful life	6 years	6 years
Annual cash operating costs	$150 000	$8 000
Present salvage value	$100 000	-
Salvage value in 6 years	$25 000	$100 000

Required:

Should HQ Department Store replace the existing system? Show all calculations.