QUESTION 5 (12 marks) The City of Joburg spent R330,000 to purchase a computerised billing system called Computerised Billing for All (C.B.F.A). Recently, a sales representative from C.B.F.A. Computerised Billing Company told the city manager about a new and improved billing system that can be purchased for R550,000. ? The representative also told the manager that the company would give the city R110,000 in trade on the old system. ? The new system will last 10 years. ? The old system will also last that long but only if a R44,000 upgrade is done in 5 years. The manager assembled the following information to use in the decision as to which system is more desirable: Old system New system Cost of the billing system R 330,000 R 550,000 Current salvage value R 110,000 R - Salvage value in 10 years R 55,000 R 88,000 Annual operating costs R 340,000 R 290,000 Upgrade required in 5 years R 44,000 R - Discount rate 14% 14% Required: 5.1 What is the City of Joburgs net present value for the decision described above? Use the total cost approach. (11) 5.2 Should the City of Joburg purchase the new system or keep the old system?