Four years ago, your company upgraded its IT infrastructure at a cost of $50,000. Its current salvage value is $25,000. The salvage value will decline to $20,000, $15,000, $12,500, and $10,000 over the next four years. The O&M costs will be $5,000 this year and increase by $2,000 per year. Your company’s interest rate is 10%. The best challenger for replacing the IT infrastructure is $15,000. When should the communications system be replaced? Please show your work along with excel cells and calculations. Appreciate it. Thank you.

Four years ago, your company upgraded its IT infrastructure at a cost of $50,000. Its current salvage value is $25,000. The salvage value will decline to $20,000, $15,000, $12,500, and $10,000 over the next four years. The O&M costs will be $5,000 this year and increase by $2,000 per year. Your company’s interest rate is 10%. The best challenger for replacing the IT infrastructure is $15,000. When should the communications system be replaced? Please show your work along with excel cells and calculations. Appreciate it. Thank you.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter10: Capital Budgeting: Decision Criteria And Real Option

Section: Chapter Questions

Problem 3P

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