Intro

Facebook runs many data warehouses full of servers. Assume that each existing server is $3$ years old and was bought for $$1,400.$ It could be sold for $$560$ now or for $$280$ in $2$ years. The annual cost of running the server $($for electricity, cooling and repairs$)$ is $$200.$

A new server costs $$1,300$ today and could be sold for $$162\mathrm{.}5$ in $5$ years. The annual cost of running it is $$110.$

Both types of servers are usable for $5$ years and are linearly depreciated to zero over $5$ years.

Facebook's marginal tax rate is $34\%$ and the appropriate cost of capital for this project is $12\%.$

Your task is to find out if Facebook should replace each server now or in two years.

Part $1$

Attempt $\frac{3}{5}$ for $8$ pts$.$

What is the present value of all cash flows if a new server is bought once right now?