Marine Industrial Coatings, Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow:

	Existing Computer	New Computer
Original cost	$10,000	$15,000
Annual operating cost	$3,500	$2,000
Current salvage value of the existing system	$4,000	---
Remaining life in 5 years	5 years	5 years
Salvage value in 5 years	$0	$0

Should Marine Industrial Coatings replace the existing computer system with the new system? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes.

Yes replace, net savings of $15,000.

Yes replace, net savings of $5,000.

No do not replace, additional costs of $5,000.

No do not replace, additional costs of $3,500.