Dexter Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: Existing Computer New Computer Original cost $20,000 $15,000 Annual operating cost $ 3,500 $ 2,000 Current salvage value of the existing system $ 4,000 --- Remaining life in 5 years 5 years 5 years Salvage value in 5 years $ 0 $ 0 Should Dexter replace the existing computer system with the new system? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes.
Dexter Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow: Existing Computer New Computer Original cost $20,000 $15,000 Annual operating cost $ 3,500 $ 2,000 Current salvage value of the existing system $ 4,000 --- Remaining life in 5 years 5 years 5 years Salvage value in 5 years $ 0 $ 0 Should Dexter replace the existing computer system with the new system? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes.
Chapter9: Capital Budgeting And Cash Flow Analysis
Section: Chapter Questions
Problem 10P
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Dexter Inc. is considering replacing its existing computer system with a new computer system. The new system can offer considerable savings in computer processing and inventory management costs. Information about the existing system and the new system follow:
Existing Computer | New Computer | |
Original cost | $20,000 | $15,000 |
Annual operating cost | $ 3,500 | $ 2,000 |
Current salvage value of the existing system |
$ 4,000 | --- |
Remaining life in 5 years | 5 years | 5 years |
Salvage value in 5 years | $ 0 | $ 0 |
Should Dexter replace the existing computer system with the new system? What are the cash flow savings or additional cost over the 5 years? Ignore income taxes.
Group of answer choices
Yes replace, net savings of $5,000.
No do not replace, additional costs of $3,500.
Yes replace, net savings of $15,000.
No do not replace, additional costs of $5,000.
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