Question
The Corvette Corporation has a computer system that is in poor condition. The system can be either overhauled or replaced with a new system. The
The Corvette Corporation has a computer system that is in poor condition. The system can be either overhauled or replaced with a new system. The following data have been gathered concerning these two alternatives: Present System Proposed New System Purchase cost when new $100,000 $150,000 Accumulated depreciation $90,000 - Overhaul cost needed now $80,000 - Annual cash operating costs $30,000 $20,000 Salvage value now $10,000 - Salvage value in 8 years $2,000 $15,000 Working capital required - $50,000 The Corvette Corporation uses a 12% discount rate and the total cost approach to net present value analysis. Both alternatives are expected to have a useful life of eight years. The net present value of the alternative of replacing the present system with the proposed new system is closest to
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