The controller of Tim$$s Travel $($TT$)$ is deciding between upgrading the company$$s existing computer system or replacing it with a new one. Upgrading the four$-$year$-$old system will cost $$97,500$ and extend its useful life for another seven years. The book value is $$19,500,$ although it would sell for $$24,000.$ Upgrading will eliminate one employee at a salary of $$19,400$; the new computer will eliminate two employees. Additional annual operating costs are estimated at $$15,950$ per year. Upgrading is expected to increase profits $3\mathrm{.}5\%$ above last year$$s level of $$553,000.$

The BetaTech Company has quoted a price of $$224,800$ for a new computer with a useful life of seven years. Annual operating costs are estimated to be $$14,260.$ The average processing speed of the new computer is $12\%$ faster than that of other systems in its price range, which would increase TT$$s profits by $4\mathrm{.}5\%.$

Tim$$s present tax rate is $35\%,$ and the cost of financing $($minimum desired rate of return$)$ is $11\%.$ After seven years, the salvage value, net of tax, would be $$12,000$ for the new computer and $$7,500$ for the present system. For tax purposes, computers are depreciated over five full years $($six calendar years; a half year the first and last years$),$ and the depreciation percentages are as follows:

Year Percent $(\%)$

$1.20\mathrm{.}00$

$2.32\mathrm{.}00$

$3.19\mathrm{.}20$

$4.11\mathrm{.}52$

$5.11\mathrm{.}52$

$6.5\mathrm{.}76$

Using a spreadsheet package, prepare an economic feasibility analysis to determine if Tim$$s Travel should rehabilitate the old system or purchase the new computer. As part of the analysis, compute the after$-$tax cash flows for years $1$ through $7$ and the payback, NPV$,$ and IRR of each alternative. SHOW THE EXCEL CALCULATIONS FOR THE ANSWERS