Question 55

Your company's old computer system cost $2.5 million 5 years ago when it was purchased new. Last year it was upgraded at a cost of $300,000. It's current maintenance cost is $500,000 per year, and it is expected to last another 4 years at this annual maintenance level. Its current salvage value is $0. A new computer system is currently available for a price tag of $1.4 million dollars installed. Training on the new system will cost an additional $100,000 in the first year only , and its annual maintenance cost is expected to be $200,000 per year. In addition, the new system will eliminate one job for an annual saving of $100,000. The new system is expected to last 4 years with a zero salvage value. Ignoring the "time value of money" your company should.. replace the old system with the new system to achieve savings of $400,000 in total over the next 4 years replace the old system with the new system to achieve savings of $100,000 in total over the next 4 years keep the old system as it is cheaper by $100,000 annually over the next 4 years keep the old system as it is cheaper by $100,000 in total over the next 4 years