Payroll Inc The Company Uses the Straight-Line Method of Depreciation

question 135

Essay

Payroll Inc.Office Services is considering the purchase of a new computer system to replace the one in operation.Data on the new computer system are as follows:
If the existing computer system is kept and used,it would require the purchase of additional hardware a year from now costing $2,000.After the use of the system for five years,the salvage value would be $300.Additional information on the existing system is as follows:
$\begin{array}{lr}\text { Cost } & \$ 12,000 \\\text { Salvage value at the end of five years } & \$ 1,000 \\\text { Useful life, in years } & \$ 4,000\end{array}$ The company uses the straight-line method of depreciation.
Required: Should the new system be purchased? Why or why not?
$\begin{array}{lr}\text { Additional years of use } & 5 \\\text { Annual operating costs } & \$ 9,000 \\\text { Remaining book value } & \$ 12,000 \\\text { Current sal vage value } & \$ 3,000 \\\text { Cost of capital } & 12 \%\end{array}$

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Definitions:

Tax Increases

Government-imposed hikes in taxes intended to raise additional revenue for public spending or to influence economic behavior.

Trade Restrictions

Measures implemented by governments to control the amount and type of goods and services that can be traded across borders, such as tariffs, quotas, and embargoes.

Policy Changes

Modifications or adjustments to existing rules, regulations, or laws enacted by a governing body.

Agricultural Adjustment Act

A U.S. federal law of the New Deal era designed to boost agricultural prices by reducing surpluses.