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A Company Must Choose Between Two New Computer Operating Systems

Question 146

Essay

A company must choose between two new computer operating systems: Linux and Windows, to replace the existing system to support its ongoing operations.
System Linux costs $50,000 and requires annual maintenance costs of $6,000 during its four-year life.System Windows costs $75,000 and requires annual maintenance cost of $4,500 during its six-year life.
The appropriate discount rate is 8 %.Which system should the firm choose? Assume both systems can be replicated.

Correct Answer:

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System Linux's NPV = -$50,000 - $6,000*P...

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