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:

Decision Table

A decision table is a tabular method for representing and analyzing logical relationships between conditions and actions, making it a useful tool for decision-making processes.

States of Nature

Different scenarios or conditions that can occur in decision-making processes, particularly in the context of uncertainty and risk.

Decision Trees

A graphical representation used for making decisions and showing the outcomes of different choices, often used in business for strategic planning or in artificial intelligence for predicting outcomes.