A Firm Is Considering the Purchase of a New Computer

question 87

Multiple Choice

A firm is considering the purchase of a new computer system at $180,000 to replace the existing system.The existing system has a 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 percent,and the asset class will remain open.The firm's marginal tax rate is 40 percent and its cost of capital is 10 percent.What is the NPV of the replacement decision?

• A) $63,788.32
• B) $69,997.54
• C) $77,376.05
• D) $83,585.26

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Definitions:

Continuous Matter

A classical concept describing matter as an infinitely divisible entity, unlike the quantum concept which describes matter in terms of discrete particles.

Observable Properties

Characteristics of a substance that can be determined through direct observation or with the help of simple tests without changing the substance's identity.

Rational Arguments

Reasoning conducted or assessed according to strict principles of validity.

Leucippus

An ancient Greek philosopher, considered one of the earliest proponents of atomism, the theory that the universe is composed of indivisible components.