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 ComputerNew Computer Original cost $20,000 $15,000Annual operating cost$ 3,500 $ 2,000Current salvage value of the existing system$ 4,000 ---Remaining life in 5 years 5 years 5 yearsSalvage value in 5 years$ 0$ 0Should 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 choicesYes 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.

Answer - No do not replace, additional costs of $3,500. Working In the existing computer system…

Answered: Dexter Inc. is considering replacing…

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

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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