Evaluating Replacement Assignment | Homework For You

  1. The management of Kimco is evaluating the possibility of replacing their large mainframe computer with a modern network system that requires much less office space. The network would cost $660,000 (including installation costs) and would save $170,000 per year in net cash flows (accounting for taxes and depreciation) in Year 1-3, $16,000 in year 4, and $150,000 in year 5 due to efficiency gains. The current mainframe has a remaining book value of $80,000 and would be immediately sold for $60,000. Kimco’s discount rate is 10%, and its tax rate is 25%. Based on NPV, should management install the network system?Get Finance homework help today