Suppose we are thinking about replacing an old computer with a new one. The old one cost us $$1,740,000$; the new one will cost, $$2,105,000.$ The new machine will be depreciated straight$-$line to zero over its five$-$year life. It will probably be worth about $$495,000$ after five years.

The old computer is being depreciated at a rate of $$384,000$ per year. It will be completely written off in three years. If we don$$t replace it now, we will have to replace it in two years. We can sell it now for $$585,000$; in two years, it will probably be worth $$171,000.$ The new machine will save us $$365,000$ per year in operating costs. The tax rate is $24$ percent, and the discount rate is $9$ percent.

a$-1.$

Calculate the EAC for the the old computer and the new computer.

a$-2.$ What is the NPV of the decision to replace the computer now?