A Firm Is Considering the Purchase of a New Computer

question 78

Multiple Choice

A firm is considering the purchase of a new computer system at a cost of $180,000 to replace their existing system.The existing system has a current market value of $50,000 today and an expected salvage value of $10,000 at the end of five years.The new system will have a life of five years and is expected to sell for $50,000 at the end of five years.The new system will save the firm $60,000 per year in operating expenses over the life of the system.Both computer systems belong to asset class 45, which has a CCA rate of 45%, and the asset class will remain open and the half-year rule will apply in the first year.The firm's marginal tax rate is 40% and its cost of capital is 10%.What is the NPV of the replacement decision?

• A)$67,965
• B)$69,998
• C)$77,376
• D)$83,585

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Definitions:

Grandparents

The parents of one's parents, who play varying roles in family structures from caregivers to sources of wisdom.

Nuclear Families

A family unit that includes only parents and their children, regarded as a basic social unit.

Two-Parent Homes

Households in which children are raised by both biological or adoptive parents, often associated with positive developmental outcomes for children.

Single-Parent Homes

Households in which one parent is responsible for raising one or more children.