Marias company is considering to invest in a new database system. The financial data for the new and current database system is given as follows: The financial data for the new database system (challenger) is as follows: Investment cost $110,000 Useful life is estimated to be 5 years Salvage value will be $95,000 after the first year, but decrease 10% each year thereafter Operating and maintenance costs are expected to be $18,000 in the first year and increase 16% each year thereafter. The financial data for the current database system (defender) is as follows: The useful life is estimated to be 5 years Salvage value will be $50,000 after the first year (from today), but decrease at 7% each year thereafter. Current market value is estimated to be approximately $100,000 Operating and maintenance costs for the next 5 years are expected to be $15,000 in the first year and increase at a rate of 30% each year after. Calculate the following with a MARR of 12%:

a. Economic service life for each option.

.b. What are your conclusions? (Ex. which one should be kept, for how long, etc)

Mathematical solution