Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,370,000; the new one will cost

image text in transcribed

Suppose we are thinking about replacing an old computer with a new one. The old one cost us $1,370,000; the new one will cost $1,630,000. The new machine will be depreciated straight-line to zero over its five-year life. It will probably be worth about $370,000 after five years. The old computer is being depreciated at a rate of $274,000 per year. It will be completely written off in three years. If we don't replace it now, we will have to replace it in two years. We can sell it now for $490,000; in two years, it will probably be worth $127,000. The new machine will save us $297,000 per year in operating costs. The tax rate is 22 percent and the discount rate is 11 percent. a. Calculate the EAC for the old computer and the new computer. (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) New computer Old computer b. What is the NPV of the decision to replace the computer now? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Accounting Information Systems

Authors: George H. Bodnar, William S. Hopwood

11th Edition

0132871939, 978-0132871938

More Books

Students also viewed these Accounting questions

Question

Assess debt features and their implications. (p. 413) AppendixLO1

Answered: 1 week ago

Question

Compute the debt-to-equity ratio and explain its use. AppendixLO1

Answered: 1 week ago